IMF optimistic of Lanka’s economic growth

by Lalin FERNANDOPULLE

“The overall economic conditions in Sri Lanka are improving and the economy is likely to show strong growth this year” said, Sri Lanka IMF Resident Representative, Dr. Koshy Mathai at a media briefing, Tuesday to announce the release of the third tranche of the IMF loan to Sri Lanka.

Dr. Koshy Mathai

He said that inflation remians subdued and average inflation for the year is expected to remain in the single digit.

“Monetory conditions are stable and interest rates have declined and credit growth has shown signs of recovery”, he said.

Dr. Mathai said the 2010 Budget represents the policies of the Government and refuted allegations that it is based on fulfilling IMF conditions. The Oposition alleged that the 2010 Budget was drafted to satisfy the IMF and did not include proposals for the benefit of the people.

The IMF urged the Government to implement broader fiscal reforms as a prerequisite for the stand-by-agreement which was reached last year to boost the country’s foreign reserves.

The Finance Ministry sources said the 2010 Budget aims to reduce the fiscal deficit, introduce tax reforms and provide long-term benefits to the people.

The second and third reviews of the stand-by agreement (SBA) with Sri Lanka was completed by the IMF and two tranches to the value of SDR 275.6 million (Approximately US $ 407.8 million) was disbursed by the IMF on Monday.

Sri Lanka has received US$ 1,060 million so far with the disbursement of the third tranche according to the SBA facility approved in July 2009.

The country’s reserves have grown significantly over the past year as a result of the inflows from trade and worker remittances.

The gross official reserves currently stand at US$ 5.5 million. The IMF said if carried out properly, the budget would significantly address past fiscal slippages, mainly through comprehensive tax reforms and sizable cuts in recurrent spending and allow the much needed reconstruction related infrastructure investment.

Dr. Mathai said that the 2010 Budget and policy package represent major steps to strengthen the Sri Lankan economy.

The eight percent budget deficit forecast for the year is attainable depending on the steps the Government would take to achieve.

The Government forecast a budget deficit of Rs. 438.8 billion, 8 percent of the GDP for next year while reducing it to 5 percent in 2012 and slashing the debt limit to 70 percent of the GDP from the current 80 percent.