Sri Lanka needs to fulfill few pre-IMF conditions


A senior government official told Finance Today that in order to reach a staff-level agreement (SLA) with the International Monetary Fund (IMF), Sri Lanka needs to fulfill few pre-conditions.


According to these conditions, the Public Utilities Commission of Sri Lanka (PUCSL) is working to allow electricity tariffs to be increased in the next few days to bring the operation of the Ceylon Electricity Board (CEB) to a profitable level in the coming months of this year.

According to sources, it is said the process is currently underway to give permission for an increase in electricity tariff of 80 per cent for all customer groups. It is also stated that the minimum electricity consumption charges will increase by 300-400 per cent for domestic users.

The Government has intended to implement this tariff hike with effect from next week.

The IMF has recommended that the CEB and the Ceylon Petroleum Corporation (CPC) should follow a cost-reflective pricing policy and the quick privatisation of SriLankan Airlines.

Accordingly, the Government has already introduced a cost-reflective pricing policy for the petroleum sector. The Government is expected to cover the losses of the CEB in the next few months of this year through the proposed electricity tariff hike.

However, based on the existing conditions, the PUCSL has pointed out that there is a tendency for further tariff revisions in the future to keep the CEB profitable without government assistance.


The IMF has also proposed that losses and other liabilities of the CEB and the CPC should be absorbed into the State accounts. However, he said that the Government of Sri Lanka has not responded well to the proposal so far.

“The IMF has suggested that the losses of the CEB and CPC should be absorbed into State accounts. If the proposal is implemented, there will be a severe impact on the government’s budget deficit this year”. The spokesman said that the Government has not yet expressed a clear agreement regarding the fulfillment of the relevant condition”.

The CEB has so far reported cumulative losses of about Rs 600 billion. Therefore, those previous  cumulative losses could be considered as part of government debt as it is set off via bank loans by the CPC and CEB and this year’s losses will impact  this year’s budget deficit.

He pointed out that since the CEB and the CPC are separate independent entities under the ownership of the central government, it is not appropriate to absorb their losses into the accounts of the central government.


The IMF has also recommended that the laws and ordinances to make the Central Bank of Sri Lanka an independent institution outside the control of the central government should be submitted to Cabinet for approval.

Accordingly, the Government is planning to replace the existing Monetary Law Act and submit the new Central Bank Act for Cabinet approval within the next few weeks subject to some amendments to the previously abandoned Bill.


Also, the Government has taken measures to bring the interim budget containing the Government’s new revenue proposals for the remaining period of this year to Parliament within the next few weeks.

In order to reach a staff-level agreement with the IMF, it is necessary that Sri Lanka presents a comprehensive economic adjustment programme to them.


Also decisive is the debt restructuring exercise underway by the financial advisor, Lazard Group that will help establish the level of debt sustainability, a key variable with the IMF.

The IMF has provided Lazard with several scenarios in the preparation of a comprehensive debt sustainability analysis (DSA) for Sri Lanka on 20 June 2022. It is after analysing those scenarios extensively that Lazard is required to recommend the optimum method to achieve debt sustainability along with the opinion of Legal Advisor, Clifford Chance.

The analytical work and recommendation were to be completed by 10 July. Some analysts feel that the delay may be due to the difficulty of achieving debt sustainability in Sri Lanka without restructuring domestic debt which simply is not part of the Lazard mandate. CBSL is said to be confident that Lazard will provide the finalised report shortly.

A major criterion will be to reduce the Public Debt to GDP ratio, which is currently close to 140 per cent, to a level below 100 per cent on a medium to long-term basis within a time frame of 10 years (2023-2032).

The Sri Lankan delegation hopes to submit the comprehensive economic adjustment programme prepared by Sri Lanka to the IMF this month based on the Lazard report.

Based on the adjustment programme submitted by Sri Lanka, the IMF may approve or decide to discontinue their programme for Sri Lanka

If it is possible to obtain the approval of the IMF, the opportunity will be provided to reach a staff-level agreement with the IMF at the end of this month.

In the next few weeks, the IMF is scheduled to be closed for the summer vacation.

IMF waiting for new government’s consent to recommence official talks

In order to continue negotiations with the IMF following the public uprising and resulting in the resignation of the President, it is learnt that the IMF is said to be expecting a few major simultaneous outcomes.

The new Government under President Ranil Wickremesinghe must exhibit its tangible willingness to continue the IMF discussions along with appointed financial and legal advisers to reach a staff-level agreement with the IMF shortly.

Accordingly, the Government led by the President should inform the IMF in writing that they were ready to continue the proposed programme with the IMF.

A government spokesman said the relevant letter will be sent to the IMF subject to the approval of the upcoming all-party Cabinet meeting.

However the President Ranil Wickremesinghe said on Saturday that an agreement with the IMF has been pushed back to September due to the unrest over the past weeks, the Associated Press reported.

He said even though he when prime minister had aimed to reach an agreement by early August, it has now been pushed back by a month, the report said.

The finance ministry on Friday said Sri Lanka had resumed bailout discussions with IMF after the new government took office and talks were highly successful. (IG)

By Ishara Gamage