The Sri Lankan economy continues to make progress and overall macroeconomic developments remain favorable. Growth is strong, inflation remains in single digits, and reserves are at a comfortable level, the International Monetary Fund (IMF) said.

The IMF yesterday (4) completed the sixth review of Sri Lanka's economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 137.8 million (about US$ 218.3 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 1.10 billion (about US$ 1.75 billion ).

“The 2010 budget deficit target has been met and budget developments so far in 2011 are broadly in line with expectations. The authorities’ plan to handle the flood-related expenses by reallocating and reprioritizing expenditure within the existing budget will help maintain the program’s deficit target for 2011," said Mr. John Lipsky, Deputy Managing Director and Acting Chair.

Steps to expand the liquidity management tools at the central bank’s disposal will help maintain its control over monetary conditions. Going forward, monetary policy will need to be vigilant about the possible second-round effects from higher prices on core inflation and strike the right balance between supporting economic growth and preventing excess liquidity from fueling inflationary pressures. Allowing sufficient two-way flexibility of the exchange rate will help support the external position and meet the reserves target, the IMF stated.

“Financial sector reforms will continue to focus on strengthening the resilience of this sector, and expand the scope of financing options available to the private sector by increasing the depth of the corporate bond market and improving the functioning of the stock market,” Mr. John Lipsky added.

Full report is at:

http://www.imf.org/external/np/sec/pr/2011/pr11117.htm