Aug 23, 2010 (LBO) - An International Monetary Fund (IMF) mission to Sri Lanka said the island's programme with the fund is on track with the government being able to meet the budget deficit target of eight percent of Gross Domestic Product.
"We think things are quite good and we're in a position to make a recommendation to the management on disbursing the next tranche of 200 US million dollars," said mission leader. Brian Aitken.
“Performance under the program has been good," an IMF statement at the end of the mission said.
"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."
Aitken said the next disbursement is likely to be in late September or October.
About a billion dollars of the 2.5 billion dollar IMF loan have been disbursed to the Sri Lankan government so far, he said.
The IMF statement said the central bank's recent rate cut was "appropriate" and that there was no sign of inflationary presssure.
The statement said: “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."
With the IMF programme with Sri Lanka now back on track, the review mission also assessed Sri Lanka’s medium-term "challenges" in the context of the fund's Article IV consultation.
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,' the IMF said.
"Significant near- and medium-term macroeconomic challenges will need to be addressed, however, if Sri Lanka is to take full advantage of the current favorable environment."
Aitken said it was important for the government to achieve the targets set in the IMF programme to maintain investor confidence and attract the foreign investment needed to speed up growth.
"Given the turbulent past record of economic stability investors are going to need to be assured the current stability can be maintained," he told a news conference at the end of the review mission.
"And for that they are going to want to see the fiscal situation brought to a sustainable level and monetary policy handled competently. If they (investors) are not assured then it's going to be an impediment."
source - www.lbo.lk
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