Monday, November 9, 2009

IMF warns Sri Lanka against borrowing

COLOMBO — The IMF on Monday warned Sri Lanka against issuing government bonds to build up foreign currency reserves after it released the second instalment of a 2.6-billion-dollar bailout.

The International Monetary Fund said Colombo's reserves were at a "comfortable position" having slumped to a historic low of one billion dollars earlier this year, but cautioned against more borrowing.

"There is a difference between borrowed reserves and reserves collected from the current account (of the balance of payments), like booming exports," IMF resident representative in Sri Lanka, Koshi Mathai, told reporters.

Sri Lanka's reserves topped a record five billion dollars after the IMF on Friday released 329.4 million dollars, the Central Bank of Sri Lanka said.

Part of the reserve built up also came from remittances from overseas workers, foreign aid flows to rebuild the war-torn regions in the north and east, as well as selling dollar-denominated debt to investors, the bank said.

According to IMF figures, Sri Lanka raised 1.2 billion dollars in government bonds from January to October.

Mathai said the inflows had created pressure on the local rupee to appreciate.

The IMF gave the bailout package to Sri Lanka in July to help the island stave off its first balance-of-payments deficit in four years at a time when security forces had stepped up their offensive against Tamil rebels.

The separatist guerrillas were defeated in mid-May.

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