Sunday May 31, 2020 17:31:26
ECONOMYNEXT – Washington-based International Finance Corporation, a unit of World Bank said it had approved a 50 million US dollar credit for Sri Lanka’s Commercial Bank to be used for Covid19 hit businesses.
The credit comes from IFC’s IFC COVID 19 Emergency Response WCS Envelope (WCS FIGE).
The money will be use for loans to cover “financing needs of companies in affected countries to maintain trade flows, stabilize the economy, support employment, and restore supplies of key goods and services,” the IFC said.
The one year credit can be renewed for two years.
Commercial Bank has said it will give loans of between 2 to 25 million for Coronavirus hit businesses, which have missed getting a loan from a central bank re-financed 50 billion rupee credit program.
Sri Lanka’s central bank has proposed a 50 billion rupee loan program re-financed with printed money, in the style used by the Reserve Bank of Zimbabwe to trigger foreign exchange trouble.
About 250 million US dollars of excess demand driven imports could be triggered from re-financed credit, which will require a similar amount of currency defence to keep the exchange rate from falling.
However Sri Lanka has slapped import controls in the style of an economic embargo for the next three months after printing over 160 billion excess liquidity into money markets, apparently in a bid to keep overnight rates down.
By giving foreign exchange cover from the central bank to commercial banks that borrow money from agencies like the IFC more liquidity and more monetary instability could be triggered, analysts say.
In the past domestic banks taht borrowed money from abroad, got a forex cover from the Treasury, which did not involve the creation of new money or expansion of the monetary base. (Colombo/Mar31/2020)