Lanka’s debt servicing satisfactory – IMF mission

By Bandula Sirimanna

A review mission from the International Monetary Fund (IMF) has observed that Sri Lanka’s debt servicing is at satisfactory levels. Noting that there may be slight differences in figures issued by the Central Bank and the Finance Ministry, IMF Sri Lanka Review Mission chief Dr. Brian Aitkin told the Sunday Times on Friday that Sri Lanka’s debt burden will not increase to alarming levels as the country’s debt servicing is satisfactory.

The Sri Lankan government plans to maintain the Budget deficit target of 6.75 percent of gross domestic product for 2011 despite the additional spending on flood relief measures, he added, speaking on the sidelines of a press conference called to discuss the mission’s visit connected to a periodical review of the $2.5 billion worth Standby Arrangement.

Dr. Aiken said Sri Lanka's targeted economic growth for 2011 will not be affected to a great extent despite the damage caused to crop cultivations. The IMF has predicted 7.0 percent growth for Sri Lanka in 2011.

He told reporters – in what is now seen as a matter of course - that the fund would approve another instalment of $217 million by end March or April, the seventh tranche under the $2.5 billion Standby Arrangement (SBA loan), after the mission submits its recommendations to the IMF board in Washington.

He said the recommendation was based on the performance of the Sri Lankan economy and the targets set under the SBA Strongly praising Sri Lanka's macro-economic performance Dr. Aitken said the economy appears to have fundamental strengths. This is despite Sri Lanka falling short on its Budget deficit target for the second year in succession.

Although the country’s fiscal position is still weak—Sri Lanka has one of the highest public debt-to-GDP ratios among emerging market countries—this is expected to fall steadily over the coming years, while inflation and monetary conditions have eased. The economy is rebounding, he said. He expressed the belief that the exchange rate should be flexible to ensure that Sri Lanka’s reserves remain healthy and that the economy is competitive.

In a statement issued at the press briefing, the visiting delegation said although inflation has increased slightly due to recent increases in food prices along with the increase in global prices, the credit growth is in line with earlier projections and the property market remains subdued showing no other signs of demand-driven inflationary pressures.

"Against this background, our assessment is that current monetary conditions are appropriate for supporting the economic recovery. While remittance inflows continue at a high rate and reserves remain at comfortable levels the trade deficit is widening as imports recover from their sharp decline in 2009.
"The shortfall of net international reserves against the end-2010 target was justified by a larger-than-expected pay down of some public-sector foreign exchange liabilities," it said.

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