Governor of the Central Bank of Sri Lanka, Arjuna Mahendran last week said Sri Lanka is “more interested in the signal an agreement with the International Monetary Fund (IMF) will give the market” while the amount of money sought from the global lender being insignificant. Speaking in a televised interview with Bloomberg, the governor said the IMF loan will give the country the ‘seal of approval’ to the market assuring that its policies are going to take the country to the next level.

“The loan amount will be insignificant. They (IMF) have their own system of calculation and accordingly Sri Lanka’s quota would be between US$1-US$ 1.5billion. Our financing gap on the balance of payments for 2016 is about US$2.5 billion. So, I think we can easily reach out to the markets to finance the balance and remember there are other donors, the World Bank, the ADB, the JICA, etc., and these lenders are willing to come in provided the IMF gives that catalyst in moving to the Sri Lankan market,” Mahendran said in an interview with Bloomberg’s Haslinda Amin on “First Up”.

When asked whether he knew at this stage of discussions, what reforms are needed to secure the funding, the governor noted that it was very clear that the government’s revenue mobilization has to improve.

“We are raising revenues like a sub-Saharan country, like 10-12% of GDP. Last year we were able to push it upto 13% of GDP and we are aiming at 15% of GDP in the next two to three years. That makes a big difference because it makes the debt overhand to be more sustainable since at the moment we don’t have enough revenue to service that debt adequately. That’s the problem.It’s not the debt itself, but in relation to the revenue the government collects, it’s not enough,” he said.

Governor Mahendran further noted that going forward, Sri Lanka’s infrastructure investments will not be reliant on borrowing but be funded by equity so that it does not leave a strain on the fiscal front.

“Going forward, infrastructure is going to be funded by equity. We already have the China’s Port City project entirely funded by equity, and we are talking to our major partners, Japan, China and Korea and all these countries coming in with equity funded projects. That will not balloon the deficit and the government will also step aside and let private investors run the infrastructure,” he said.

He pointed out that in the past, the government had overplayed its hand in investing in infrastructure and borrowing to fund its infrastructure while the new government is now shifting the model to bring in private investments into infrastructure and other areas of business activity by bringing in more Public-Private-Partnerships, etc.

“This was the element that was lacking in the last five years of our growth story. And as you know the Chinese government has lent us around US$10 billion in the country to build an airport, port, power station, etc. That has caused a constraint on government’s spending. The government’s revenue has been the Achilles heel. These have been low historically. And the Treasury is now trying to collect more taxes which will make the debts more sustainable,” he said.

Speaking further, the Governor said that after IMF, Sri Lanka would also look at other types of funding from a ‘multiplicity of sources’. He said several bi-lateral and multi-lateral sources are looking at funding to Sri Lanka and they are waiting for the IMF.

“We would be interested in Sukuk. Our Arab investors have been interested in investing in Sri Lanka. As you know a lot of Sri Lankans are working in the Middle East and there is lot of affinity between the Middle East and ourselves. And of course we have the prospect of Panda bond issuance in China. I was in Beijing a few weeks ago and the the governor of the People’s Bank of China Zhou Xiaochuan has told us that he gives complete freedom for us to issue bonds in the local market and interestingly you can onshore them into USD for a cheaper rate than borrowing directly in Dollars in the Dollar markets. So, there’s lots of opportunities out there, but the key thing is we have to have IMF on board giving us that seal of approval that Sri Lanka is ready for business now,” the Governor elaborated.