“Ambassador opened by noting his surprise that the Central Bank Governor had gone public so soon (March 3) about the Government’s intention to negotiate an agreement with the IMF. Cabraal responded that he had information that the Opposition UNP Party was about to leak the information with a highly unfavorable spin, so the President had authorized him to explain the Government’s reasons for seeking IMF assistance. Cabraal said the decision had been correct, and opposition criticism thus far had been more muted than expected” the US Embassy Colombo informed Washington.
The Colombo Telegraph found the related leaked cable from the WikiLeaks database. The unclassified cable discusesSri Lanka’s debut sovereign bond issue. The cable was written by the Ambassador Robert O. Blake on march 12, 2009.
The US Embassy wrote; “Ambassador observed that the IMF apparently would be seeking to help Sri Lanka strengthen and stabilize its reserves and reduce its budget deficit. Cabraal agreed those would be key goals. With respect to the foreign exchange picture, Cabraal said current reserves are sufficient to cover six weeks of imports, but the Government needs cash flow. Hence it is negotiating currency swaps with Malaysia and perhaps other countries. Cabraal said Sri Lankan exports had declined by 10 percent in January 2009, but imports had dropped by 30 percent in value due to lower oil prices. Asked about remittances, a traditionally strong source of foreign exchange for the government, Cabraal did not think remittance revenues would drop substantially. He said that his counterparts from India, Pakistan, and Nepal had all told him recently that they too were not experiencing significant drops in remittances. Moreover, more of Sri Lanka remittances were coming through the banking system than informal means such as hawalas. Asked about the Central Bank’s efforts to raise foreign exchange through sovereign bonds, Cabraal said there had been a ‘good’ response from the Sri Lankan Diaspora in Europe. He estimated that the Government had raised ‘tens of millions’ of US dollars thus far towards its 2009 goal of 500 million dollars.”
“Cabraal said the Government would address its fiscal deficit, both by raising revenues and cutting spending. He declined to specify what specific revenue measures Sri Lanka has in mind, noting only that new taxes on imports are under consideration, even though such taxes would adversely effect inflation, which recently had come down to 7 percent. He also predicted the Government would realize savings from declines in defense spending as the war in northern Sri Lanka winds down. Cabraal told Ambassador that he expects the IMF team to come back to Sri Lanka in the very near future with a view to negotiating an agreement in as little as one month’s time.” Blake further write.