IMF Stand By Agreement transparent

No hidden conditions in the IMF Stand By Agreement (SBA) between Sri Lankan government and the IMF and all the terms, conditions, the agreed milestones and targets are in the MoU that is published in the Central Bank website, said the head of the visiting IMF mission Dr. Brian Aitken.

The IMF mission was in Colombo from September 9-22, on the first review of the program supported by the SBA.

The SBA entails seven quarterly reviews over the next 18 months. Each review will assess macro economic developments, determine the progress towards meeting the agreed program benchmarks and review prospects for achieving the program’s goals. Aitken said that during the visit, his delegation met the senior officials of the Treasury, Central Bank, private sector and the civil society representatives. The second tranche of the IMF loan is scheduled to be released in October, after this review and the third in January.

Aitken said that the recent economic development in Sri Lanka is stronger than expected and IMF expects a 3.5% economic growth rate in 2009, higher than expected 3% growth rate at the time the program was approved. Inflation remains lower and is expected to remain at single digit during the year. Exports have shown signs of recovery in recent months. Import growth that remained sluggish is expected to pick up in the second half of the year as economic activities increase.

IMF mission said that the government’s policy approach is in line with the program and the performance based on July targets are broadly satisfactory. Net international reserves position shows continuous impressive growth driven by increased investor confidence and stronger than expected remittance.

Foreign investments flows into longer term treasury bonds is a positive sign. However, the Central Bank should build a buffer against the capital flows.

IMF welcomes Central Banks measures taken to rebuild reserves and reducing policy interest rates. The fiscal outlook too has improved and 7% budget deficit target is ambitious. Fiscal targets are tough and continued to be tough but government is committed to taking necessary steps to achieve this by improving tax administration to further increase the tax revenue and controlling the inflation. The reconstruction of the war-torn North and East will add extra cost next year which will be around 1-1.5% of the GDP. Government expects to bring the Ceylon Petroleum Corporation and the Ceylon Electricity Board to break even level by 2011. It would help to maintain the budget deficit.

IMF loan facility cannot be used for the development projects or reconstruction work and those assistance should come from the donors.

The SBA is to maintain the reserve position, stability of the financial system and the stability of the currency. IMF will re-open its country office in Colombo in early October. Dr. Koshy Mathai will head the country office, Aitken said.