Economic developments stronger than expected:
First review of IMF Stand-By Arrangement
Sanjeevi Jayasuriya
|
The Head of IMF Mission Dr. Brian
Aitken addresses the media at the Central Bank conference
room. Dr. Koshy Mathai and Dr. (Mrs) Eteri Kvintradze look
on. Picture by Sumanachandra Ariyawansa |
Highlights
* Economic growth projected to be 3.5
percent in 2009
* Net international reserves continue to
show impressive growth
* High remittances, a boost to the economy
The economic performance has improved since July. There is a steady
inflow to the bond market and foreign investments to the country. Sri
Lanka’s economy is showing signs of bottoming off. We are positive about
the outlook and performance, said Head of IMF Mission Dr. Brian Aitken.
The Government and the IMF have agreed on milestones and achieving
targets. Recent economic developments have been stronger than expected.
Economic growth is now projected at 3.5 percent in 2009 relative to 3
percent at the time of program approval. Inflation remains subdued and
is expected to remain in the single digit in 2009. Exports have shown
signs of recovery in recent months and import growth, which has thus far
remained sluggish, is expected to pick up in the second half of 2009 as
economic activity increases, he said.
An IMF Mission visited Colombo to hold discussions with the
authorities on the first review of the program supported by the Stand-By
Agreement. The program was approved by the IMF executive board on July
24 and entails seven quarterly reviews over the next 18 months. Each
review will assess macroeconomic developments, determine progress
towards meeting the agreed program benchmarks and review prospects for
achieving the program’s goals.
The Government’s policy approach has been in line with the program
and performance based on the program’s July targets has been broadly
satisfactory. Net international reserves continue to show impressive
growth driven by an increase in investor confidence and stronger than
expected remittances. The Central Bank’s action to rebuild reserves
while reducing policy interest rates is welcome. The recent recovery in
budget revenue has improved the fiscal outlook, he said.
There was an increase in the net international reserves due to high
remittances following the end of the war and this is a big boost to the
economy. The Government is moving in the right direction in meeting the
IMF laid down physical targets. However, it is too early to comment
about the Budget.
The 2010 Budget deficit should be 6 percent. The IMF Stand-By
arrangement has been provided to rebuild the Central Bank reserves. It
could not be used for reconstruction of the North and the East. We need
to evaluate how we could accommodate this, he said.
The Government remains committed to the policy measures laid out in
the technical Memorandum of Understanding on economic and financial
policies to achieve the targets set by the IMF.
It includes a further increase in net reserves and additional steps
to strengthen the financial sector. The program’s target of reducing the
budget deficit to 7 percent of the GDP in 2009 is ambitious, but the
Government is committed to taking steps to achieve this by improving tax
administration to support further increases in revenue and controlling
expenditure. There have been no hidden conditions, he said.
The Government is in line to achieve the target of 2 percent revenue
increase. There is no need to increase taxes, but to broaden the base
and to simplify the tax collection. It is important to increase the
level of efficiency in tax collection. Our expertise is not in the
structural changes, but in monitoring progress and efficiency. We focus
on budget deficit, quality and feasibility adjustment, he said.
The IMF staff will monitor the developments over the next several
weeks including performance against the end-September targets to
determine whether adequate progress had been made to recommend at the
completion of the first review for consideration by the IMF’s Executive
Board. If the Board approves the completion of the review, the next
disbursement under the program would be released by the middle of next
month.
The IMF is planning to set up an office in Colombo within the next
two weeks.
|