Lanka on track to meet economic targets - IMF
The International Monetary Fund (IMF) last week said that the broad
economic review of Sri Lanka is positive and within the IMF targets.
“An IMF mission led by Brian Aitken visited Colombo during November
11-20, 2009 to hold discussions on the second review of the $2.6 billion
Stand-by Arrangement, approved on July 24, 2009. Completion of the
review would lead to disbursement of the third tranche of nearly $330
million under the program. The mission met with officials from the
Central Bank, the Ministry of Finance & Planning, and other government
ministries and departments, as well as representatives of the private
sector and civil society, the statement issued by IMF Colombo office
said.
Dr. Aitken said, “Economic developments have been more favourable
than expected at the time of program approval in July. Confidence has
improved and output growth is showing signs of picking up. Foreign
investor enthusiasm remains strong. Garments exports are stronger than
expected, and import growth is starting to increase. The recent decline
in interest rates should support higher growth in 2010. With economic
activity well below Sri Lanka’s potential, inflation is expected to
remain in single digits next year. “With gross reserves now at more
comfortable levels, the risk of an imminent balance of payments crisis
is no longer present. This improved situation provides the space for the
government to carry out policy reforms that will address the economy’s
vulnerabilities, accelerate reconstruction and resettlement, and lay the
basis for strong future growth,” he said.
“The government’s economic policies have so far been in line with the
program. All end September targets were met. Monetary growth is picking
up as expected, and the Central Bank’s actions to rebuild reserves while
reducing policy interest rates are appropriate. Actions are being taken
toward tax reform - the Presidential Tax Commission’s work is
progressing, and the Commission’s final recommendations are expected to
be ready in time to provide an input into the full-year budget for 2010,
to be submitted to the new parliament next year.
“Looking forward, the government has reiterated its commitment to the
policy measures laid out in its Memorandum of Economic and Financial
Policies, including meeting future targets for net reserves and taking
additional steps to strengthen the financial sector. Achieving the
government’s targets of reducing the underlying budget deficit-before
accounting for grant-financed spending and excluding provisions for
reconstruction-related project spending-to 7 percent of GDP in 2009, and
further to 6 percent of GDP in 2010, will be challenging, but these
fiscal targets remain within reach.
The mission discussed with the authorities progress on resettlement
and reconstruction. A framework for accommodating higher reconstruction
spending within the program was agreed with the 2010 fiscal targets
adjusted to allow for increased foreign financing of these projects.”
“The IMF team will now return to Washington and monitor developments
over the coming weeks to determine whether adequate progress has been
made for the staff to recommend completion of the second review of the
Stand-by Arrangement to IMF Management and the IMF Executive Board Staff
envisage that, if such a recommendation were to be made, the Board could
consider the review sometime early in the first quarter of 2010,” Dr.
Aitken said.
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