Fiscal discipline essential - IMF

Budget moving in the right direction:

Ramani Kangaraarachchi

A Sri Lankan policy agenda that takes into account new global developments would include continued fiscal discipline, financial market development and national consensus, International Monetary Fund’s (IMF) Asia Pacific Department Anoop Singh said.

Speaking on ‘Asia in the New World Order, Implications for a Rising Sri Lanka’ at the Central Bank Training Centre on Friday, he said business-environment improvements, large investment and human capital, meaningful private sector participation and regional integration are the other aspects such policy should include.

Singh said Sri Lanka has already achieved peace and economic stability.

“The country’s external position is healthier, inflation and monetary conditions have eased and the economy is re-bounding. Globally Asia has come to the fore, and a rebalancing of world demand is underway,” he said.

“The fiscal position is still weak. But 2010 and 2011 budgets move in the right direction helping the debt ratio to move downward. This situation is significant and it is not in the category of some countries,” he said.

For the first time, Asia is leading a global recovery and becoming a dominant global region. Therefore it is necessary to have a global rebalancing because the Western consumer is now retrenching and Asia is still dependent on exports making them vulnerable to shifts.

Consumption in China will need to rise but rebalancing has different implications across Asia, because the ratio of consumption is low.

Elaborating on implications and policy priorities for Sri Lanka Singh said restoring export share should be a policy priority.

“A greater regional integration will help capitalize on Asia’s growth and the public should be kept under control when doing this.”

There is a need to re-build exports to boost GDP. This could be done through export diversification and sophistication which will give scope to lift market share. He said fiscal discipline should be maintained. Improving the business environment is the key to spurring FDI and growth. The Government has set clear objectives of improving Sri Lanka’s rank in Doing Business which will attract foreign investors.

Financial market development in all three standards namely banking sector loans, stock market capitalization and domestic corporate bond issuance is essential and without that it is going to be very difficult to maintain quality.

Initiatives in education and training is needed to improve quality. Although Sri Lanka has done well in the literacy rate it is necessary to build education and increase universities as having a highly educated people is very vital.

“This is a critical moment to Sri Lanka and it needs to build infrastructure and a knowledge economy,” he said.