Economy to show strong growth in 2010 -IMF
An International Monetary Fund (IMF) mission led by Dr. Brian Aitken
of the Asia and Pacific Department visited Colombo August 11-23, 2010,
to conduct discussions for the fourth review of the Stand-By
Arrangement, approved on July 24, 2009. The mission also held
discussions as part of the Article IV consultation, a regular
surveillance exercise that the IMF undertakes with all its member
countries.
The mission met officials from the Central Bank, the Ministry of
Finance and Planning, the Presidential Tax Commission, and other
government ministries and departments, as well as representatives of
civil society and the private sector.
The mission issued the following statement at the conclusion of its
visit:
"Overall economic conditions are improving as expected in the last
visit, and the economy is likely to show strong growth this year.
External balances are strong, remittance inflows continue at a high
rate, tourism prospects continue to improve rapidly and gross reserves
remain at comfortable levels. We assess the central bank's recent rate
cut as appropriate-with bank lending only slowly beginning to rebound
and economic growth still below potential, we see little sign of
emerging demand-driven inflationary pressures and average inflation for
the year as a whole is expected to remain in the single digits."
"Performance under the program has been good. End-June performance
criteria on domestic budget borrowing, reserve money and net reserves
have been met. With budget revenues increasing and expenditure restraint
continuing, fiscal performance so far remains consistent with achieving
the government's full-year deficit target of 8 percent of GDP. Financial
sector reforms continue to go forward in line with the program."
"With the program now back on track, this review is an opportune time
to assess Sri Lanka's medium-term challenges in the context of the
Article IV consultation. Since the last consultation two years ago a
great deal has changed-the end of the 30-year war has led to a surge in
investor enthusiasm, bolstered by the decline in the risk of a
short-term balance of payments crisis-and future growth prospects have
improved markedly.
Significant near-and medium-term macroeconomic challenges will need
to be addressed, however, if Sri Lanka is to take full advantage of the
current favourable environment."
"First, a fundamental tax reform is needed-and planned-to simplify
the existing system, broaden the tax base (including by restricting
concessions), spread the tax burden more equitably and support economic
growth, all while boosting the revenue-to-GDP ratio. The resulting
fiscal space could allow increased public capital spending on
reconstruction and infrastructure as well as social spending to support
the vulnerable, but it is clear that the country's large investment
needs cannot be met through the government budget alone.
Private-sector investment will need to play a critical role. To
foster this investment, policies will need to be geared toward
preserving macroeconomic stability, ensuring external competitiveness,
facilitating capital market development and improving the investment
climate, all of which would lay the basis for higher sustainable growth
in a post-war environment."
"The authorities' progress thus far on key policy reforms under the
program, albeit with some delays, is an important step toward meeting
Sri Lanka's medium-term challenges. The IMF team will now return to
Washington to consult with IMF management and will discuss steps toward
planning an Executive Board meeting on the Article IV consultation and
the fourth review under the Stand-By Arrangement."
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