Talks between Sri Lanka and the European Commission with regards to continuing with GSP Plus trade concessions were progressing well, Central Bank Governor Ajith Nivard Cabraal said.

He stressed that he is confident European Union GSP Plus trade concessions for Sri Lankan exports would continue while the IMF Review Mission’s return after parliamentary elections would also see improvements in the fiscal front.

"We are optimistic it (GSP Plus) would materialize but we have ensured that Sri Lanka can face up to a crisis (in the event the trade concessions are withdrawn). We must recognize the fact that the economy must move forward notwithstanding GSP Plus," Cabraal said in answer to a question raised about the progress made in talks by a special delegation that visited the EU recently.

"Discussions have so far been positive," quoting Cabraal, the Island reported.

Economists argue that GSP Plus could be of great benefit to the post-war economy as it would help maintain existing jobs and help create new jobs as Sri Lanka strives to diversify its export basket to make use of the 7,000 tariff-free lines under GSP Plus.

With the world economy slowly emerging from a global crisis, although some economists argue the recovery is still not in sight, GSP Plus would help Sri Lanka retain its export markets in the EU, particularly for ready made garments already under siege by low-cost competitors from Bangladesh, Vietnam and China, the report added.

Sri Lanka still has time to reach a compromise with the European Commission, but in the event GSP Plus is lost, the President said temporary relief would be given to exporters to the EU, said the Island.

The Central Bank’s Annual Report for 2008, and the flagship report of the Institute of Policy Studies, Sri Lanka: State of the Economy 2009, both highlight the need for the government to reign in high expenditure as priority spending could come under stress.

Cabraal said Sri Lanka met all but one of the targets during the last IMF review concluded last month.

"The IMF review mission would be back after the elections and we believe there would not be a problem," Cabraal said.

Economists argue that Sri Lanka no longer needs the IMF because the original problem, a balance of payments crisis, which made the standby facility important then does not exist now with official reserves now in the range of US$ 6 billion.

However, they argue that the continuance of the IMF programme is important because it would give foreign investors confidence that Sri Lanka is keen to address its fiscal imbalances in a bid to further long term sustainable development.