IMF wants flexible policies maintained

Tuesday, 24 July 2012 01:57 - - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

Following the end of the US$ 2.5 billion Stand-By Agreement, the International Monetary Fund (IMF) remains upbeat about the Sri Lankan economy and further collaboration will be finalised later this year, an official said yesterday.

The IMF transferred the final tranche of US$ 415 million of the SBA to Sri Lanka on Friday, marking the first programme from the monetary organisation ever completed by the country, IMF Resident Representative Dr. Koshy Mathai told media.

He noted that the economy during the programme showed strong growth and even though fiscal policy had been more lax than what the IMF initially wished for, strong steps had been taken at the start of 2012, which augured well for the nation.

“There have been some real achievements; growth has been quite strong for the last few years, inflation has come down, reserves have been built up quite substantially, the fiscal deficit has come down, and the debt ratio has also come down. But against this good backdrop, not everything has been smooth. Fiscal policy was looser than expected early on the programme. Last year we saw a delayed adjustment and early this year there was a very firm response and now the Government has moved to a very flexible policy framework, which stands them in good stead for facing the pressures in the economy,” he said.

Dr. Mathai called on policy makers to maintain the same flexibility of policy, particularly in regard to the foreign exchange market.

“There is no doubt that those policy changes have meant short-term pain for the economy, there is no doubt about that, but looking forward we are confident that these flexible policies will stand the economy in good stead and put it in a good position to have sustainable growth going forward.”

The overall sentiment was of optimism for the country’s development prospects: “We see a future of sustainable progress for Sri Lanka and we continue to be optimistic about Sri Lanka’s long term growth prospects.”

He remarked that an IMF team would be in Sri Lanka later in the year to finalise future collaborative mechanisms.

“The IMF team will be here for an ‘Article 4’ consultation, which is the financial check-up given by the organisation to all its members. The finer points of any future collaboration will be discussed then,” he noted.

The statements come after the Central Bank expressed interest in an Extended Fund Facility (EFF) that would support the development agenda of the Government.

Responding to questions, Dr. Mathai refused to speculate on the appreciation of the rupee, saying that it was difficult to predict whether capital inflows would be maintained for an extended period of time.

He also insisted that Sri Lanka could not be marked as a country that had missed the peace dividend as it had managed to grow substantially during the last three years and this was only made possible by the end of the war.