The International Monetary Fund (IMF) mission on Tuesday commended Sri Lanka’s economic performance under the (fund) programme saying it had met ‘with all end-September performance criteria’.
It said monthly budget results to date ‘are encouraging and suggest that the 2010 deficit target of 8 %’ of GDP is within reach. “The authorities’ structural reform agenda under the program also appears to be broadly on track,” the statement issued at the end of a fund mission led by Dr. Brian Aitken, head of the IMF Sri Lanka’s Stand-By Arrangement (SBA) review, said.
The team visited Colombo during December 1-10 to conduct discussions for the Fifth Review of the $2.6 billion SBA. The mission met with government and Central Bank officials, as well as representatives of civil society and the private sector.
In the statement, the review mission said overall economic conditions remain strong, with GDP likely to grow by around 7½ % this year. “Inflation has risen, but this appears to be driven mostly by food prices, and credit growth is picking up as expected, suggesting that the current monetary policy stance remains appropriate,” it said. The trade deficit was widening, as imports recover from their sharp decline in 2009, but remittance inflows continued at a high rate and reserves remained at comfortable levels. “We continue to believe that the exchange rate should retain the flexibility to ensure that the economy remains competitive,” the statement added.
The team said the 2011 budget targets has further deficit reduction along with substantial reforms to the tax system and the investment promotion regime, in line with the authorities’ policy commitments.
It said the tax reform simplifies the system, reduces many rates, and broadens the base. “The net revenue impact is expected to be substantially positive, though some uncertainty is unavoidable with such an extensive set of policy changes.
The new approach to investment promotion, if fully implemented, involves a shift away from tax concessions as the principal tool for attracting investment as well as an increase in transparency. No doubt further progress on these and other fronts will be needed to ensure an acceleration of growth and a transformation of the economy, but the reforms announced in the budget are welcome steps,” it added.
While challenges remain, the authorities have made substantial progress toward fiscal and external sustainability. The IMF team said it will monitor developments with the aim of holding an Executive Board meeting on the 5th Review.