Recent economic developments have been stronger than expected. Economic growth is now projected at 3½ percent in 2009 relative to 3 percent at the time of program approval. Inflation remains subdued and is expected to remain in the single digits in 2009. Exports have showed signs of recovery in recent months. Import growth, which has thus far remained sluggish, is expected to pick up in the second half of this year as economic activity increases, said The International Monetary Fund (IMF) in its First Review of the IMF Stand-By-Arrangement.

It also said the government’s policy approach has been in line with the program, and performance based on the program’s July targets has been broadly satisfactory. Net international reserves continue to show impressive growth driven by an increase in investor confidence and stronger than expected remittances.

The central bank’s actions to rebuild reserves while reducing policy interest rates are welcome. The recent recovery in budget revenue has improved the fiscal outlook.

The government has reiterated its commitment to the policy measures laid out in the Memorandum of Economic and Financial Policies, including a further increase in net reserves and additional steps to strengthen the financial sector, the IMF said.

An IMF mission visited Colombo during September 8-22, 2009 to hold discussions with the authorities on the first review of the program supported by the Stand-By Arrangement. The program was approved by the IMF Executive Board on July 24, 2009 and entails seven quarterly reviews over the next 18 months.

During this visit, the IMF staff met with officials of the Central Bank, the Ministry of Finance, other government ministries and departments, and private sector and civil society representatives.