July 25 (Bloomberg) -- The International Monetary Fund, which has mounted rescues from Iceland to Ukraine in the past year, said it approved a $2.6 billion loan to Sri Lanka.
The Washington-based lender’s executive board voted today on the 20-month arrangement aimed at helping the island nation rebuild its economy after the end of a 26-year civil war and replenish its international reserves. About $322 million will be made available immediately, the IMF said in a statement today.
“This money is mainly for reserves and balance-of- payments,” Jaliya Wickramasuriya, the country’s ambassador to the U.S., said in an interview in Washington.
Sri Lanka’s reserves declined by more than half in the six months that began in September to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF in March.
The IMF has said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing areas damaged by the conflict.
“The global financial crisis has had a significant impact on Sri Lanka’s economy,” Takatoshi Kato, IMF deputy managing director, said in the statement. “Persistently high budget deficits forced the government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing.”
Sri Lanka’s central bank this month raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent after the government in May defeated the Liberation Tigers of Tamil Eelam, a separatist group.
Sri Lanka aims to cut its budget deficit to 7 percent of gross domestic product in 2009, from 7.7 percent last year, central bank Governor Nivard Cabraal said in a July 21 interview.
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