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Friday, February 18, 2011

UPDATE 1-Sri Lanka likely to have achieved deficit goal-IMF

By Ranga Sirilal

COLOMBO | Fri Feb 18, 2011 6:20pm IST

Feb 18 (Reuters) - The International Monetary Fund on Friday said Sri Lanka is likely to have achieved its budget deficit target of 8 percent of gross domestic product (GDP) under a $2.6 billion loan programme.

After completing its sixth assessment of Sri Lanka's performance under the loan, the mission head said the government was executing its policies in line with the goals of the programme.

"Performance against the end-December targets was satisfactory, with the 2010 budget deficit likely to have been held within the target of 8 percent of the GDP," Brian Aitken, the IMF mission head, told reporters in Colombo.

The global lender on Feb. 3 approved Sri Lanka's sixth tranche of the loan and waived end-December fiscal deficit and international reserves targets at Sri Lanka's request, but urged more financial reform and commitment to executing changes that improve its weak fiscal position. [ID:nSGE71201O]

The IMF originally set a 7 percent fiscal deficit target in 2009 and 6 percent last year, excluding post-war reconstruction costs.

However, later the global lender revised the target to 8 percent in 2010 after the island nation overshot the 2009 target and hit an eight-year high deficit of 9.8 percent.

The IMF last year delayed the second tranche of the loan by nine months until Sri Lanka's government presented a financially prudent budget.

Analysts and economists have said Sri Lanka could miss this year's revised deficit target of 6.75 percent due to the recent floods, which the government had estimated as causing damage of $500 million.

"Any effect on food prices is likely to be temporary and given the strength of the Sri Lankan economy, the overall impact on output growth should be limited," Aitken said.

"Addressing the impact of the flood may require some reallocation of budget resources, but the authorities feel that it is premature at this stage to revisit their targeted deficit for 2011 of 6.75 percent of GDP."

The global lender also has set 5.25 percent deficit target for 2012.

It also said that economic growth in country's $50 billion economy was 7.75 percent in 2010. The central bank had estimated growth at 8 percent last year. (Writing by Shihar Aneez; Editing by Bryson Hull)

source - in.reuters.com