Lanka has advanced on economic front - Nelmes

Sara Pathirana

“Sri Lanka has accomplished remarkable advancement on a number of economic fronts over the past few years: growth has been vigorous, inflation has declined from high double digits, fiscal and external consolidation is underway and the Standby Arrangement was successfully completed,” John Nelmes, IMF Head of Mission to Sri Lanka said at the conclusion of its staff mission’s visit.

IMF Head of Mission to Sri Lanka, John Nelmes, at the discussion.

A staff mission led by John Nelmes visited Colombo between January 30 to February 13 and conducted discussions for the Article IV consultation, which is the IMF’s regular exchange of economic views with each of its member countries and to discuss possible financial support for Sri Lanka’s economic reform agenda.

Real GDP growth is projected to amplify to around 6.25 percent in 2013 and the revival will likely be constrained by the need to continue fiscal consolidation; high inflation, which limits the room for near-term monetary easing and a continued slow recovery in Sri Lanka’s main trading partners, mainly the US and EU. The mission had agreed with the authorities that lowering inflation to mid-single digits would strengthen macroeconomic steadiness in future. Therefore, along with structural reforms to improve efficiency and competitiveness would support healthy growth over the medium term.

The mission had welcomed the authority’s obligation for continued fiscal consolidation, given the public debt levels remaining elevated.

The budget deficit was kept close to the target of 6.25 percent of GDP through outflow restraint and delays in cash payments. The plan to diminish the deficit to 5.75 percent of GDP this year is appropriate.

However, tax revenues have now fallen to below 11.5 percent of GDP, among the lowest in the region and which reflects the decreasing activity, declining imports and exemptions and issues with tax discrimination.

The mission and the authorities also explored a potential IMF programme, designed to build on Sri Lanka’s achievements under the SBA.