The tussle over exchange rate policy and the depreciating rupee figured in some of the discussions a visiting mission from the International Monetary Fund (IMF) had this week, sources familiar with the talks said.
The rupee was virtually unchanged in the money markets this week, starting off on Tuesday (the first working day after the Poson Poya holiday on Monday) at Rs 130.50 per dollar and ending at Rs 130.40 on Friday, dealers said.
UNP parliamentarians were among various groups that the visiting fund mission met. The delegation is led by John Nelmes after long-time mission chief Brian Atken ended his term and has moved to another assignment. The team will be in Sri Lanka the whole of next week too.
The sources said that the team was of the view that the rupee should not be tampered with and that the market should allow the currency to find its own level. This follows various statements over the past fortnight where President Mahinda Rajapaksa, under pressure from rising costs of essential imports due to a depreciating rupee, has said the rupee should be retained at the Rs 125-level, a view also shared by Treasury Secretary Dr P.B. Jayasundera.
However with the Central Bank not intervening in the market since last February in line with IMF policy to allow the rupee find its true value, the rupee has been hovering in the Rs 130-range in the past few weeks.
While UNP officials declined to comment on the discussions with the IMF in line with past practice, the sources said that the discussion also centered on government efforts to raise more money from other avenues including floating a sovereign bond.
“The mission was not too happy about the various statements on the rupee versus dollar parity rate (the President’s comments) and UNP MP Eran Wickremaratne’s assertion that the rupee will ease to Rs 140 per dollar by the end of the year,” one source said.
The UNP also pushed for transparency and access to information, and financial governance pointing out that the IMF should have raise concerns with the government on this last point. “It was pointed out that by not commenting on financial governance would suggest that the fund was endorsing (such behaviour),” the source said.
IMF officials were not available for comment. CB officials said the team was discussing technical details with Bank officials. “They are ascertaining issues like economic growth, whether Sri Lanka could grow by 7 or 7.2 %, trade data and money supply,” one official explained. The final installment totaling some $420 million is expected to be approved after the mission returns to Washington and submits a report to the IMF board.
There have been confusing signals about the possibility of a new $500 million loan from the IMF. This was first broached by Senior Minister Sarath Amunugama in a newspaper interview where he spoke of such a facility.
Last week however, CB Governor Ajith Nivard Cabraal said the minister may have been misquoted and the reference was probably about the current facility ($420 million) that is due.
However an economist said he believed that in view of a depreciating rupee the government may be seeking another facility from the fund. “While Sri Lanka got 400 % of its quota, which is more than the usual 300% that is given, some countries have got up to 600 % and more of their quota. In this context, it is possible for Sri Lanka to seek another facility,” he said.