Sri Lanka to Seek IMF Waiver

Sri Lanka has missed a June forex reserve target in an International Monetary Fund program, and the island will seek a waiver of the performance criteria, Central Bank Governor Indrajit Coomaraswamy said, EconomyNext reported. Sri Lanka has already met the fiscal deficit target, he said. The forex reserve target is a performance criteria, which has to be met to pass an IMF review. Coomaraswamy said the target was set last year, when the central bank was collecting forex reserves easily, but external conditions had since changed, and there have been outflows from emerging markets. Analysts have also warned the central bank against injecting cash into the banking system through term reverse repo and outright treasury bill purchases. When the central bank’s domestic assets grow expanding demand, it is not possible to collect reserves. In additional a pick-up in credit also makes it more difficult to collect forex reserves. Collecting forex reserves, especially from current flows tends to squeeze credit and economic activity, dampening growth. Slower reserve collection may help boost growth.