ECONOMYNEXT – The International Monetary Fund is “very concerned” about the economic crisis in Sri Lanka and has started technical-level discussions with central bank and finance ministry teams, the head of the lenders’ mission said. Masahiro Nozaki Island.

“At the IMF, we are very concerned about the current economic crisis in Sri Lanka and the hardships faced by the people, especially the poor and vulnerable,” Nozaki said.

“We are following political and economic developments very closely.”

The Sri Lankan rupee is in dire straits due to money being printed to keep rates low under ‘flexible inflation targeting’, which critics say is a non-regime with peg conflicts that have led to monetary crises in rapid succession over the past seven years.

Analysts had warned for several years that if ‘flexible inflation targeting’ and ‘flexible exchange rate continued, Sri Lanka could end up with steep currency depreciation, defaults, inflation, power cuts and fuel shortages and the rupee could die in the dollarization of the market”.

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What the IMF program in Sri Lanka should look like

The IMF has already started technical-level talks with Sri Lankan officials.

“We have received a request from the authorities for an IMF-supported program and have started engagement at the technical level with the finance ministry and central bank teams,” Nozaki said.

“We are committed to assisting Sri Lanka in accordance with our policies, and will engage in discussions on a possible program with senior politicians in the days and weeks ahead.”

Sri Lanka’s Finance Minister Ali Sabry told parliament that about US$3.0 billion could be expected from the International Monetary Fund under a three-year facility.

About $3.0 billion equates to about 535% of Sri Lanka’s US$790 million quota under exceptional access, minus the outstanding loan of $1,200 million from a previous program.

Sri Lanka’s new central bank governor, Nandalal Weerasinghe, raised policy rates by 700 basis points to limit money printing and control runaway inflation after an attempted float due to high rates failed. low directors and a buy-back obligation.

The surrender requirement remains in place and will nullify any attempt to establish a coherent wavering, critics have warned.

The rate hike is an attempt to save the rupee and its rupee banking system. Taxes will also need to be increased to save the overstaffed public sector and prevent the printing of money to pay its salaries.

In April, about 120 billion rupees were printed to pay salaries and advances.