Sri Lanka's new leaders seek S$5.4 bln IMF bail-out

Sri Lankan Finance Minister Ravi Karunanayake said on Thursday, Feb 12, 2015, that the country's new government will seek to borrow more than US$4 billion (S$5.4 billion) from the International Monetary Fund (IMF) and other international lenders
Sri Lankan Finance Minister Ravi Karunanayake said on Thursday, Feb 12, 2015, that the country's new government will seek to borrow more than US$4 billion (S$5.4 billion) from the International Monetary Fund (IMF) and other international lenders as it "restructures" expensive Chinese debt. -- PHOTO: AFP

COLOMBO (AFP) - Sri Lanka's new government will seek to borrow more than US$4 billion (S$5.4 billion) from the International Monetary Fund (IMF) and other international lenders as it "restructures" expensive Chinese debt, the finance minister said Thursday.

Ravi Karunanayake said he was travelling to Washington next week for talks with the International Monetary Fund and the World Bank on securing support to boost reserves and finance investments in health and education.

"With the new government in place, there is a lot of international goodwill," Mr Karunanayake said. "We would love to have an enhanced programme with the IMF for balance of payments support."

Sri Lanka was expecting to tap the IMF for about US$4 billion while additional funding was sought from the World Bank.

The previous IMF bail-out was US$2.6 billion in 2009, when Sri Lanka faced a balance of payments crisis at a time when Tamil Tiger rebels were being crushed in a major military onslaught.

The minister said Sri Lanka would also talk to the World Bank about securing aid for projects relating to health and education.

Beijing, Sri Lanka's biggest lender in recent years, funded much of the country's post-war infrastructure driver under the previous administration of Mahinde Rajapakse.

Mr Karunanayake said these loans had been granted on average at rates of between five and seven percent.

"In some cases, the interest rate on Chinese loans is as high as eight percent," Mr Karunanayake said. "Where possible, we want to renegotiate and reduce the rate."

Sri Lanka's economy is among the fastest growing in South Asia, but the IMF last year warned the island was vulnerable to sudden external shocks due to high levels of foreign commercial borrowings.

By the middle of last year, Sri Lanka's foreign borrowings stood at US$42.4 billion, up from US$39.7 billion at end 2013 and a figure the IMF considers high.

In 2013, the previous government dropped plans to seek a fresh US$1 billion loan from the IMF following disagreements over how the money should be spent. However, Sri Lanka later raised the same amount through a bond issue.

The country's economy grew by a blistering 8.0 per cent in the first two years after the end of a decades-long Tamil separatist war in 2009, but growth has since moderated. The IMF is forecasting a growth rate of 6.5 per cent this year, lower than the government's target of 7.0 per cent.