Sri Lanka Looks to IMF for Help as Debt Burden Climbs

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Ravi Karunanayake, Sri Lanka's Finance Minister.

By Asantha Sirimanne and Anusha

Ondaatjie Jan 20, 2015
Sri Lankas two-week-old government plans to start discussions with
theInternational Monetary Fund on reducing a debt burden that grew
under the previous administration, Finance Minister Ravi Karunanayake
said.
Karunanayake, who will meet IMF officials today, said in an interview late
yesterday that President Maithripala Sirisena wanted to reduce interest
costs on the island nations 7.2 trillion rupees ($55 billion) in total debt. He
ended Mahinda Rajapaksas 10-year rule in a Jan. 8 election.

We are initiating discussions on a new program, Karunanayake, 51, said in

his Colombo office yesterday. He declined to give further details, only
saying that we will not be dictated to by any of these multilateral
agencies.
Sirisena is seeking to clean up Sri Lankas finances and review the nations
growing ties withChina, which has provided funding for large infrastructure
projects. He plans to maintain fiscal discipline and eliminate corruption
while taxing the super rich to benefit the poor, Karunanayake said.
About 40 percent of government revenues go to repaying interest on
borrowings, one of the highest among countries rated by Moodys Investors
Service. Sri Lankas debt burden of 78 percent of gross domestic product
also remains higher than similarly rated peers such as Vietnam andKenya,
in which the median is 41 percent of GDP, the company said this month.
Sirisena is reviewing all investment projects to ensure that they are done at
a cheaper cost, Karunanayake said. That includes several China-backed
projects, he said, adding that Sirisena and others have been in touch with
Chinese President Xi Jinping over the investments.

China Review
China became Sri Lankas largest investor, top government lender and
second-biggest trading partner under Rajapaksa. Projects include a
proposed $1.4 billion complex the size of Monaco on reclaimed land in
Colombo port.
What we are telling the Chinese is nobody is prevented from doing projects

here, Karunanayake said. But basically we cannot be told to endorse

projects where costs are inflated.
Sri Lanka is seeking to expand trade ties with the European Union,
Karunanayake said. The bloc denied the island nation preferential trade
access in 2010 due to human rights abuses during a 26-year civil war.
The EUs proportion of Sri Lankas total trade fell to 14 percent in 2013 from
23 percent a decade earlier, while Chinas grew to 12 percent from 3
percent in that time, data compiled by Bloomberg show.

Real Situation
Sri Lanka last turned to the IMF after the civil war ended in 2009 to bolster
its international reserves. It received the final tranche of a $2.6 billion IMF
loan in 2012.
The IMF projected that Sri Lankas $67 billion economy would grow 6.5
percent in 2015, compared with 7 percent the previous year. It had
averaged more than 7 percent growth since 2009, one of the fastest rates
in South Asia.
Karunanayake, a former Sri Lankan commerce minister, said the finance
ministry was also collating the real situation on Sri Lankas gross
domestic product and debt. He had previously served in the cabinet in 2001
under a government led by the United National Party, the largest in
Sirisenas disparate coalition.
Karunanayake is scheduled on Jan. 29 to announce an interim budget thats

in line with Sirisenas campaign pledges. The president is expected to

dissolve the current parliament in April and call for general elections.

Budget Deficit
Sirisenas backers, including free-market capitalists, hard-line Buddhist
parties and the islands main Tamil and Muslim groupings, may prompt
changes in fiscal and economic policies that could erode Sri Lankas credit
standing, Standard & Poors said after the vote.
The overall budget deficit will not be increased, Karunanayake said. We
will not burden the people. We are reducing costs, eradicating corruption.
He said the government hasnt decided yet on whether to privatize more
companies, a policy endorsed by Prime Minister Ranil Wickremesinghe
during two previous stints in the role.
We will have a transparent environment for foreign investors,
Karunanayake said. We will maintain macro-economic fundamentals
conducive for investors.
To contact the reporters on this story: Asantha Sirimanne in Colombo
atasirimanne@bloomberg.net; Anusha Ondaatjie in Colombo
at anushao@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate
at dtenkate@bloomberg.netJeanette Rodrigues

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