‘Overall economic conditions are improving as expected, and the economy is likely to show strong growth this year,’ said the International Monetary Fund (IMF) in a statement at the end of its mission to Sri Lanka, led by Mr. Brian Aitken.

‘External balances are strong, remittance inflows continue at a high rate, tourism prospects continue to improve rapidly, and gross reserves remain at comfortable levels’, IMF further said.

The IMF noted that the budget deficit in 2009 exceeded 9¾ percent of GDP due to faster-than-expected project disbursements, higher interest payments, weak revenue, and post-conflict rehabilitation and humanitarian expenditures.

The statement added, ‘the government has laid out a set of polices intended to correct the slippages and move toward sustainable deficit reduction while securing spending for protecting the most vulnerable in society’.

IMF also noted that since end of 2009, Sri Lankan authorities have met the program’s end-March targets for net international reserves, reserve money, and net domestic financing.

‘They [GoSL] expect to submit to parliament shortly a 2010 budget involving substantial deficit reduction for the year as a whole, driven primarily through savings in recurrent spending. The government is planning to begin undertaking a comprehensive tax reform, drawing on recommendations from the Presidential Tax Commission. They are also considering concrete steps to improve the investment climate. With the near-term external vulnerabilities eased, the government is shifting its emphasis toward more forward-looking growth-enhancing policies that address some of the economy’s key structural weaknesses’, the IMF statement further said.

‘We are encouraged by these policy proposals which could form the basis for completing this review’, IMF said.

IMF added, ‘we continue to assess the central bank’s monetary stance as appropriate—with bank lending only slowly beginning to rebound, and economic growth still below potential, we see little sign of emerging demand-driven inflationary pressures, and average inflation for the year as a whole is expected to remain in the single digits’.

The IMF team will discuss all relevant issues with IMF management and the next steps toward completing the review of the Stand-By Arrangement at the Executive Board.

The IMF mission met officials from the Central Bank, the Ministry of Finance & Planning, the Presidential Tax Commission, and other government institutes during their official visit to Sri Lanka in the aim of discussing on performance and policies under the $2.6 billion Stand-By Arrangement, approved on July 24, 2009.