IMF calls for transparency

By Uditha Jayasinghe

The International Monetary Fund (IMF) yesterday called on the Government to increase transparency and good governance to boost investment and dispel perceptions of mixed signals to the private sector.

The IMF mission led by Dr. Brian Aitken on a fact finding mission before the review in September told a press conference that the macroeconomic situation in Sri Lanka was positive but that the country could improve in terms of transparency and accountability.

He insisted that there was a “perception” by the private sector that the business environment was not sufficiently transparent and that more needed to be done in this regard.

“Sustained higher economic growth will require an environment more conducive to domestic and foreign investment. Increased transparency and improved governance could also bolster market confidence and lead to higher investment. However there is a perception that the Government is sending some potentially conflicting signals about the role of the private sector in economic development. This could be deterring investment and should be addressed,” he said.

Commending the Government’s efforts to target key business ranking such as the Ease of Doing Business Index published by the World Bank, he pointed out that more transparency needed to exist in tender procedures and large transactions should be tabled in Parliament for a widespread public discussion. “There are many bureaucratic and legal issues that need to be sorted out,” he added.

The IMF encouraged the Central Bank to make exchange rates more flexible and insisted that this was necessary for a sustainable and competitive economy. “The challenge is to make exchange rates flexible without disturbing the growth of the economy.”

On the positive side, the IMF backed Central Bank predictions that inflation would ease off towards the end of the year, but cautioned on rising imports that could tilt the balance for price increases.

“Strong export growth and continued large remittance inflows have supported reserves, but going forward rapid import growth and high oil prices could put pressure on the balance of payments. In this event the Central Bank should allow the exchange rate to reflect market forces and flexibly and avoid sustained sales of foreign exchange, ensuring that reserves remain healthy and the economy competitive.”

Welcoming the increased flow of Foreign Direct Investment (FDI), the IMF nonetheless admitted that the largest amount of time on this visit was spent in “digging around” to ascertain the accuracy of growth statistics. Applauding the tax reforms, he nonetheless observed that revising guidelines, institutionalising policy and clarifying regulations would assist investors.

“The figures could be more accurate, but having said that, it is the case in every country. No one can deny that there has been improvement of exports but accurately ascertaining it is tricky.”

Another challenging point is finding the right time to tighten monetary policy, noted Dr. Aitken, maintaining that the Central Bank would have to take measures to ease inflationary pressures and widespread shortages of goods and services in the market.

“Private sector credit growth has been rapid but from a low base and there are not yet signs of demand driven inflationary pressures. The Central Bank should however be on the lookout for signs of overheating and be prepared to adjust monetary policy accordingly. Bands and finance companies should also guard against a relaxation of lending standards and the accompanying risk of non-performing loans.”

Denies hand in Pension Bill

The IMF yesterday denied any involvement in the formulation of the controversial Pension Bill, insisting that “we had nothing to do with it”.

Responding to a question, IMF Review Mission head Dr. Brian Aitken told the Daily FT that the IMF was in no way involved with the Pension Bill that was introduced by the Government for the private sector, but noted that it had come up in discussions.

“What we were given to realise was that a Private Sector Pension Bill was necessary given the rapidly ageing population, but the IMF had nothing to do with it.

It is our belief that pension schemes should be formulated by society through widespread discussions and does not come under the IMF,” he said.