Progress under SBA stable:
IMF to conduct semi annual reviews
The International Monetary Fund (IMF) has decided to conduct semi
annual reviews on Sri Lanka considering the progress of the economy and
its track record, said IMF Resident Representative, Dr. Koshy Mathai at
the completion of the sixth review of the Stand-By Arrangement (SBA) on
Dr. Koshy Mathai
He said the IMF team visited the country once in three months for
quarterly reviews but now has decided to conduct semi annual reviews
taking into account the progress of the economy under the SBA.
“The Sri Lankan economy continues to make progress under the SBA and
the overall macroeconomic developments remain favourable. Growth is
strong, inflation remains in single digit and reserves are at a
comfortable level”, Dr. Mathai said.
IMF approved US$ 218.3 million bringing the total disbursement to SDR
1.10 billion (about US$ 1.75 billion) under the arrangement. Sri Lanka’s
foreign reserves have surpassed US$ 6 billion.
IMF approved the SBA in July 2009 for US$ 2.6 billion to support Sri
Lanka’s foreign reserves which had shrunk rock bottom before the
The IMF is pleased with the meeting of the 2010 budget targets and
added that the budget developments so far in 2011 are in line with
The review further stated that steps taken to handle flood-related
expenses by reallocating and reprioritising expenditure within the
existing budget will help maintain deficit targets for 2011.
Floods in the North Eastern parts of the country in the early part of
the year put inflationary pressure on domestic food prices.
Torrential rains swept vast stretches of paddy land in the East and
the exact loss has not been assessed yet.
Dr. Mathai said that the recent increase in domestic fuel prices is
painful and added that there needs to be a scheme to ease the burden on
“The rise in domestic fuel prices will have an impact on inflation
which will come down in the rest of the year”, he said.
According to the Central Bank, inflation dropped to 6.8 percent in
January on a year-on-year basis from 6.9 percent in December last year.
The annual average inflation increased to six percent in January this
year from 5.9 percent in the previous month.
Fuel prices were increased last week in keeping with the rise in
global oil prices that is expected to further surge due to the tension
in the Middle East and the crisis in Japan.
The IMF noted that reforming the two State energy enterprises and
bringing their combined operating balance to zero this year will ensure
durability of fiscal adjustments. For this end, it is vital to allow
adjustment of domestic prices to reflect fluctuations in global oil
The IMF noted that steps to expand liquidity management tools at the
Central Bank’s disposal will help maintain its control over monetary
conditions. Allowing sufficient two-way flexibility of the exchange rate
will help support the external position and meet the reserves target.