IMF commend Central Bank

The current favourable environment in the country offers a window of opportunity to address remaining macroeconomic challenges and build a strong foundation for private sector-led growth, the International Monetary Fund (IMF) said.

This will require continued fiscal adjustment, a more efficient capital market, and an improved business environment.

Growth in the medium-term will depend on progress in rebalancing the economy from traditional drivers of growth towards export of services, building on Sri Lanka's strategic geographical location and comparative advantage in services, IMF Executive Directors said.

While acknowledging the improvement in fiscal performance, the Directors emphasized the need for forceful action to reduce the budget deficit and public debt.

Directors stressed that the 2011 budget would be a key step in embarking on a credible reform strategy, aimed at broadening the tax base, simplifying the tax and tariff systems, and improving tax administration.

Directors commended the Central Bank for bringing inflation under control and endorsed the current monetary policy stance.

Directors recommended a gradual move toward a more flexible monetary policy framework that targets inflation more directly, taking into account a wide range of factors, including exchange rate developments and demand conditions.

Directors noted that the Government's financial sector reform actions have gone a long way towards addressing past weaknesses.