"We are quite happy with the way Sri Lanka’s economy has progressed and the government’s policy reforms. Fiscal and monetary policy is not the primary concern for us and we believe targets would be met," Dr. Koshy Mathai, IMF Resident Representative in Sri Lanka, told journalists in Colombo. (See page 8 for official IMF statement).
He said reserves were at comfortable levels while the economy was showing strong growth.
However, Dr. Mathai reiterated the need for two-way flexibility in the exchange rate.
"We have always said that Sri Lanka needs to have a flexible exchange rate. Central Bank intervention has been necessary and no central bank would allow exchange rates to fluctuate. But Sri Lanka’s Central Bank intervention as been one sided and we say there has to be two-way flexibility," he said which meant allowing a little appreciation or depreciation depending how the market behaves.
The Executive Board also approved a waiver of applicability for the three end-March performance criterions on; the net international reserve target, reserve money and net domestic financing of the central government.
"This is because we did not have the data available of time, a common occurrence in these programmes, but there was nothing to suggest that Sri Lanka would not be able to achieve them, hence they have been waived," Dr. Mathai said.
The IMF Executive Board has also decided to re-phase of the remaining disbursements.
Since receiving IMF support from the second half of 2009, quarterly reviews were being held with a team visiting Sri Lanka after which a report was presented to the IMF Executive Board which approved the disbursement of funds. The only time Sri Lanka missed a tranche was when the budget deficit ballooned to 9.9 percent of GDP in 2009, veering sharply from an 8 percent target.
Since then the government has shown a lot of improvement and policy improvements have been ‘tight’. It is likely that the 8 percent target for 2010 and 6.8 percent target for 2011 would be met, Mathai noted.
"Having to talk about a sixth review is indeed a luxury, because in the past Sri Lanka has not gone beyond the first review before programmes with the IMF were terminated. But now considering the progress Sri Lanka was making under this programme, the IMF feels it can relax its monitoring. The review mission would visit quarterly, but the Executive Board review would take place once in six months and disbursements would be doubled. Earlier if Sri Lanka received around US$ 200 million each quarter, it would now receive around US$ 400 million every six months," Dr. Mathai said.
The last review before the programme concluded would take place early 2012.
"It is hoped the government would be able to maintain improvements in fiscal policy after that," Dr. Mathai said.
source - www.island.lk
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