Economy improving

IMF happy with overall growth:

Ramani KANGARAARACHCHI

The overall economic conditions of the country are improving as expected International Monetary Fund (IMF) Mission Leader Dr.Brian Aitken said.

Speaking at a media briefing held at the Central Bank yesterday he said the economy is poised for a recovery this year.

“The external balances are strong, remittance inflows continue at a high rate, tourism prospects are rapidly improving, and gross reserves remain at comfortable levels,” he said. The IMF mission held discussions for ten days on performance and policies under the $2.6 billion Stand-By Arrangement approved by the Board on July 24, 2009.

Dr Aitken said the Government has met the targets agreed under the program for net international reserves and reserve money for end December.

However final data for the overall budget balances are not yet available, but the ceiling on domestic budget borrowing -consistent with the Government’s overall deficit target of 7 percent of GDP was exceeded by a substantial amount, he said. “This mainly reflects faster than expected infrastructure project implementation, higher interest payments, and sluggish fourth quarter revenue growth.

The IMF is currently assessing the implications of this outturn for bringing the underlying deficit to a sustainable level,” he said. Despite higher borrowing, as well as a recent upturn in year-on-year inflation, the IMF mission continues to assess the Central Bank’s monetary policy stance as appropriate.

The bank lending is slowly beginning to rebound and economic growth remaining below its potential and there is a little sign of emerging demand-driven inflationary pressures.

The Central Bank has acted appropriately through its monetary operations by not allowing higher budget spending to be financed through the creation of additional liquidity. The upward trend in inflation in recent months reflecting the temporary effects of increases in food and other international commodity prices from low levels in 2009 is in line with mission’s expectations and should peak somewhere mid year before reversing itself in the second half of 2010.

This phenomenon is not unique to Sri Lanka and is currently taking place in many other countries as well. The IMF mission expects average inflation for the year as a whole to stabilized in the high single digits.

Dr Aitken said the mission remains engaged in a constructive dialogue with the Government to achieve its goals with the aim of agreeing on policies to support staff’s recommendation to IMF Management.