IMF closing down Colombo mission

The International Monetary Fund (IMF) has decided to close down its resident representative office in Colombo when the term of its current Senior Resident Representative, Luis Valdivieso’s term ends next month.

“The decision reflects the evolving nature of the IMF's relationship with Sri Lanka, with Sri Lanka no longer having a programme with the IMF, and also was taken in the context of the overall declining real administrative budget available to the IMF,” the Fund said in a statement. Mr. Valdivieso told The Sunday Times that the decision was taken because “the IMF hasn’t had a programme with Sri Lanka for a long time”.

He said, however, the IMF would take part in the Sri Lanka Development Forum, formerly known as the Sri Lanka Aid Consortium (and held in Paris), at the Galle Lighthouse Hotel on January 29-30 at the invitation of the Finance Ministry. The last Development Forum meeting was held in Kandy on May 16-17, 2005.

The IMF representative, who said the office would close down on February 1, noted that the decision also followed the restructuring of the organization. “We are pruning our offices overseas. For instance, in India, we’ll have a small office,” he said.

The statement said the IMF and the Sri Lankan authorities would continue the close and collaborative relationship and maintain an open dialogue. “The IMF remains firmly committed to the government’s efforts to promote sustained economic growth and poverty reduction. IMF teams will continue to visit Sri Lanka to exchange views with the authorities, as they do in all member countries,” it said.

On Thursday, the IMF’s Colombo office, probably its last review statement from Sri Lanka, said in a report that despite an escalation of hostilities, the country’s economy had continued to show resilience.

“With only minor interruptions in most parts of the country, growth is projected at 7 percent. Financial markets have remained calm, though investor confidence has been somewhat weakened by increased uncertainties,” the report released on Thursday, said.

It was based on the regular Article IV consultation with Sri Lanka by an IMF team visiting Colombo in October and doesn’t deal with the 2007 budget which was presented a month late, in November.
It said growth has accelerated since mid-2005, reflecting in part tsunami-related reconstruction efforts. This was initially accompanied by large capital inflows and lower inflation. More recently, however, while strong growth brightens the near term outlook, inflation has been rising, coupled with a slowdown in capital inflows and a rise in the debt service burden.

On fiscal consolidation, the report said the authorities stressed their commitment to bring the fiscal deficit down to 5 percent by 2010, which is essential for debt sustainability. This is best achieved through revenue enhancing policies and rationalization of current spending to protect critical development projects. The recent decision to implement the full pass through of oil prices has removed a significant component of fiscal vulnerability, the report said.