IMF Resident Representative in Sri Lanka, Dr. Koshy Mathai said that the IMF program will play a confidence building role, for the Sri Lankan economy.

“The need for IMF dollars in order to service the upcoming debt repayments and import bills is smaller than a year ago. But those disbursements will still play a confidence building role for the Sri Lankan economy”, he told news360.

He added that Sri Lanka’s foreign reserves as of now stands at an extremely healthy level of over $ 5 billion.

The IMF representative pointed out that although foreign reserves include a considerable component of borrowed reserves, Sri Lanka is in an advantageous position as large amounts of those borrowed dollars were used to buy long term government bonds, which cannot be easily sold in the secondary market, as the market is not liquid enough.

But he cautions, if imports start picking up, the situation might change and added increasing earnings from exports and foreign remittances and bringing in foreign investments are vital to help maintain the reserve position.

An IMF team is expected to arrive on the 12 May, to discuss with the government about its plans for presenting the 2010 budget.

The vote on account has been extended up to July and will present a mini-budget in July.

The IMF expects that the government will come out with a good budget to reduce expenditure, increase revenue and ensure fiscal targets are met in a meaningful way, which he said will decide the future of the IMF program in Sri Lanka.

Koshy Mathai said, narrowing the fiscal deficit is a very difficult task, but critical to ensure medium term macro economic stability in the country.

He said, “without a stable macro economy you’re not going to get growth. If the interest rates, exchange rates and inflation show volatility; no investor can make specific future plans.”

IMF which approved a $ 2.6 billion standby arrangement for Sri Lanka last July has already disbursed around $ 650 million. However it delayed the disbursement of the 3rd trench expressing concern over the countries fiscal position which recorded a deficit of 9.7% in 2009 which in rupee terms stands at a massive 469.2 billion.

However Mathai said, along with the healthy reserve position, the countries monetary policy is also managed sensibly, once again an area IMF looks in at the ongoing Program with Sri Lanka, news360 reported.