The objective of the government's economic program is to cushion the impact of the global financial crisis on our economy and in particular its effects on the most vulnerable, consolidating our efforts to bring down inflation, and maintaining Sri Lanka's strong record of economic growth over the past few years, states the Central Bank of Sri Lanka in its Letter of Intent submitted to the International Monetary Fund (IMF).

The Executive Board of the IMF on Friday approved a 20-month Stand-By Arrangement for Sri Lanka in an amount equivalent to SDR 1.65 billion (about US$2.6 billion) to support the country's economic reform program.

Upon the Executive Board’s approval, an amount equivalent to SDR 206.7 million (about US$322.2 million) becomes immediately available to Sri Lanka. The remaining amount will be phased in, subject to quarterly reviews. The total amount of IMF resources made available under the arrangement equals 400 percent of the country’s quota.

The Letter of Intent (LoI) adds that growth of economy is projected to slow environment and the fall in domestic demand. At the same time inflation, after reaching a high of 28 percent on a year -on - year basis in June 2008, decelerated sharply to one percent in June 2009 and is expected to remain in single digits in 2009 as a result of recent monetary policy efforts and significantly lower commodity prices.

It adds that relatively lower oil prices, a sharp decline in imports , a steady flow of remittances, and continued flexibility in the exchange rate will allow the current account deficit to recover from 9 percent of GDP in 2008 to around 1 ¼ percent by end- 2009.

Commenting on economic recovery LoI states that assuming a recovery in the global economic conditions and gradual normalization of economic activity in the North and the East of the country, we expect growth in 2010 to increase, while inflation is expected to remain low. Over the medium term, the macroeconomic and structural policies set out in the Mahinda Chintana - in particular the measures aimed at reducing the cost of living, boosting infrastructure development by attracting foreign direct investments, and increasing competitiveness and productivity - should help accelerate economic growth. While the unusual uncertainty about global economic prospects poses a downside risk, the rebound in confidence following the end of the war could contribute to a stronger recovery than projected.

LoI further states... Effective actions will be needed to reverse the declining trend in tax revenues (in percent of GDP) and bringing the fiscal deficit in line with the Fiscal Responsibility Act and Government policy.

We aim to contain the overall Government deficit to 7 percent of GDP in 2009 compared with 6 ½ envisaged in the 2009 budget.

Consistent with the Government's objective of substantially increasing tax revenue, a number of tax policy and administration measures are envisaged during the program period to further reduce the budget deficit to 5 percent in 2011.

Given the difficult external environment, financing of the central Government deficit during 2009 is expected to come mainly from domestic sources.

For the Letter of Intent to IMF visit : Central Bank of Sri Lanka