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Saturday, 16 June 2012 01:24 - - {{hitsCtrl.values.hits}}
By Uditha Jayasinghe
The International Monetary Fund (IMF) yesterday downgraded Sri Lanka’s growth prospects but insisted that its economic future is bright and will continue engagement even after the US$ 2.6 billion stand-by agreement comes to an end.
The IMF delegation tasked with wrapping up the eighth and final review of the Stand- by Agreement was upbeat of the country’s economic progress and lauded tough policy changes implemented in February that included ending Central Bank currency intervention.
“The economy should grow by around 6.75% percent this year, as tighter macroeconomic policies work to ease demand to a more sustainable pace. The uncertain global environment poses a downside risk,” Mission Head John Nelmes told media.
The Central Bank has put the growth figure at 7.2 per cent. On a bleaker note the IMF has predicted that inflation will hit around 9.5 per cent but core inflation would remain lower. These projections are the highest in the post-war period.
“Inflation is likely to rise to upper single digits and we thus need to keep monetary policy focused on inflation pressures for the time being. While the transition has caused difficulty in many segments of society, we share the authorities’ assessment that the new policy framework will strengthen the fundamentals of the economy and lay the basis for sustained economic growth.”
Nelmes and his team will return to Washington where the IMF Executive Board will meet on 20 July to decide on the release of the final tranche. Data for June targets have not been made available to the team but they have been assured targets will be met.
“The authorities are successfully implementing a bold package of policy measures to curb the current account deficit and safeguard reserves, and these measures are yielding fruit. Credit growth has slowed and imports have declined. Given the new policy framework as well as continued strength in remittances and success in attracting capital inflows, international reserves at the Central Bank have now stabilised.”
Since 60 per cent of Sri Lanka’s exports are to the U.S. and Euro zone the downturn would affect government revenue this year, Nelms acknowledged adding that the IMF was prepared to offer technical assistance if required.
“Government revenue collections and interest expenditure are under pressure but the authorities remain committed to meeting their deficit target of 6.2 per cent.”
He remarked that the Sri Lankan Government were interested in a continued relationship with the IMF but that the modalities of this were still being worked out.
“There is a possibility of more funds,” he said but insisted that it was too early to speculate on numbers.
