SL’s macro-economic situ satisfactory - IMF

Ravi Ladduwahetty

The International Monetary Fund (IMF) said yesterday that Sri Lanka’s macro-economic situation was satisfactory, the tax reforms implemented and added that the country’s private sector credit growth has also seen a dramatic improvement.

This follows a three member IMF Staff Mission from Washington being here on a two day visit to assess the progress of the economy.

The members of the mission are: Head of Mission Dr Brian Aitken, Dr Lawrence Dwight and Dr Ding Ding. There will also be a Review Team arriving in Sri Lanka in September and on the assessment of the economy, the IMF would be providing Sri Lanka, a further $ 450 million tranche of the $2.6 billion it pledged in 2009.

Addressing a news conference which also had the Colombo Resident Dr Koshi Mathai, Dr Aitken among others, said: “The IMF Board took the decision in April to shift from quarterly to semi-annual reviews under the $ 2 1/2 billion Stand-By Arrangement, approved on July 24, 2009.

“Consistent with this, a staff mission visited Colombo May 31-June 10 to conduct discussions in the lead up to a Seventh Review mission expected in September. The team met with government and Central Bank officials, as well as representatives of civil society and the private sector. The team issued the following statement today at the conclusion of its visit.

“The macroeconomic situation is satisfactory. Economic growth slowed somewhat in the first quarter of this year reflecting flood-related damage, but leading indicators suggest that growth is currently strong across all sectors. Inflation is expected to remain in single digits as food prices have begun to decline.” Dr Aitken said.

“The tax reforms initiated in the 2011 budget have been implemented, tax revenue is strong, and fiscal performance to date remains consistent with the government’s 2011 deficit target of 6.75 percent of GDP.

The government has appropriately shifted investment promotion away from granting tax concessions. More steps need to be taken to institutionalize this policy by revising investment guidelines and regulations to provide more clarity to prospective investors while safeguarding tax revenue.”

“Private sector credit growth has been rapid, but from a low base, and there are not yet signs of demand-driven inflationary pressures.

The central bank should, however, be on the lookout for signs of overheating, and be prepared to adjust monetary policy accordingly. Banks and finance companies should also guard against a relaxation of lending standards and the accompanying risk of non-performing loans.”