Business Times

IMF says fiscal policy a major challenge

Serious changes required to maintain ambitious budget targets next year and 2011

The International Monetary Fund (IMF) this week said it was happy with two components of Sri Lanka’s economy – foreign reserves and monetary policy – but noted that the major challenge was fiscal policy and it was awaiting the December figures to check whether targets were met.

IMF Representative in Sri Lanka Dr Koshy Mathai said the government kept to the fiscal targets set for the quarter to July and the quarter to September. “However we have to see the December target which is the one (that has to be) consistent with the fiscal deficit target of 7% of GDP (Gross Domestic Product) for 2009,” he told the Business Times in an interview on Thursday.

He said while the authorities have been disciplined on the expenditure side (so far) the last few months data (September to December) needs to be checked on both revenue and expenditure as to whether they are under control or not.

The newspaper posed questions on when the third tranche is due, targets set in the fund’s Standby Arrangement (SBA) with Sri Lanka in which two tranches have been disbursed and the current account surplus that Sri Lanka was having for the first time in 32 years (since 1977).

He praised the Central Bank for its policies vis-à-vis the IMF programme and expressed ‘great’ satisfaction with the reserves position. “In fact in most countries we have to urge the Central Banks to tighten their (monetary) policy whereas in Sri Lanka the reverse is happening where the policies are good and meant to bring down inflation,” he said.

On monetary policy, Dr Mathai said, “while earlier we thought there was scope to loosen (the policy), now with the latest rate cuts by the Central Bank, we believe monetary policy is in the right place. We need to wait for a few months before deciding if it needs to be changed (either tightened or loosened).”

Expressing a note of caution, Dr Mathai, who arrived two months ago as the fund’s first Sri Lanka representative reopening an office that was closed in January 2007, said the government has set ambitious fiscal deficit targets of 6% in 2010 and 5 % in 2011 and noted that waiting for the economy to recover and boost revenues naturally is not likely to be enough to meet the ambitious 2010 and 2011 targets.

“There would have to be serious changes in the budget, ways of enhancing revenue, ways of cutting expenditure - maybe in politically difficult ways - but some substantial changes would have to be done if the government wants to reduce the deficit,” he noted.

Asked about the third tranche in the $2.6 billion loan, Dr Mathai said the IMF, after the November visit of a mission team, will continue to monitor the situation, including performance against the end-December targets, before deciding on how to proceed.“We are waiting to check the December (quarterly) targets,” he said adding that after that a recommendation would be made to the IMF Executive board. “We are not in any delay mode at the moment.”

Asked to respond to the Central Bank announcement of Sri Lanka ending 2009 with the first current account surplus since 1977, Dr Mathai said the surplus is in line with the trend in many countries where imports have shrunk and consumer demand substantially falling. However he noted that imports are expected to pick up and a similar surplus is unlikely in 2010. He said increased remittances could also trigger increased spending by those who receive these remittances (families of migrant workers).

Top to the page  |  E-mail  |  views[1]
Other Business Times Articles
IMF says fiscal policy a major challenge
Current account surplus due to rising budget deficit, falling growth
GK depositors protest over tax claims
JKH wants to expand in hotel sector
Accountability and corruption haunts tsunami anniversary
GSP+ reversal: Exporters worried about mid-to-long-term impacts
Colombo bourse index reached all-time record
Comment - Lessons from the Tsunami
Mabroc Kelani Valley Teas: Creating the world’s ethical tea brands
Tapes key to Galleon case, Khan's lawyer says
TRC to dish out LTE, Digital TV and WiMax frequencies next month
Local 28.8 Mbps downlink HSPA trial a 'success'
Coca-Cola employees improve facilities at Ampara school
'ICT for National Development and Integration' next week
Central Bank steps to rescue yet another ailing finance company
Utilities Regulator to ensure safety of power supply in schools
CB to guarantee bank loans to finance and leasing cos.
“Dare to Dream” blog draws in business community
22% UK SMEs want to outsource, disregard negatives - report
Kerala film park offers post production facilities for Lankan movie makers
Sri Lankan Entrepreneur of the Year meets the President
Additional leg-room on Cathay Pacific
Consumers cautious in spending
Credit Cards Vs. Debit Cards
Overspending big concern this Christmas – Business Times poll
Early planning is key to implement new accounting standards
Matchmaking programme completes 15 years
Tsunami-hit villagers of Kiula call for saner counsel at UN Climate Summit
Supreme Court to order the seizure of assets of Lalith Kotelawala
HR managers doubt accuracy of evaluation process - study
New service to care for the elders
Singer proposes Rs.600 million debenture issue to refinance debt
400 OLPC XO laptops to primary school children
Train timetables, crop prices now through GovSMS
Tea export revenue surges at Malwatte Valley Plantations
Mc Currie gets ISO certification
Uva region -- poorest in IT literacy
'Garments Without Guilt' at global meeting


Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2009 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution