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Saturday, February 04, 2012 - 5.15 GMT

IMF commends Sri Lanka's commitment to reduce budget deficit


The International Monetary Fund (IMF) has commended the Central Bank's decision to raise the monetary and exchange policy rates and the government's commitment to reduce the budget deficit.

The IMF staff mission visiting the country to review the IMF's US$ 2.6 billion Stand-By Arrangement approved in July 2009 commended the measures taken by the Sri Lankan government to maintain the country's economic growth.

The IMF said it is encouraged by the recent adjustment in the monetary and exchange rate policy stance as well as the strong commitment of Sri Lankan government to further reduce the budget deficit to 6.2 percent of GDP in this year.

The mission led by Dr. Brian Aitken of the Asia and Pacific Department said Sri Lanka has achieved significant annual growth of 8 percent last year and Inflation continues to moderate to solid mid-single levels.

"The budget deficit also declined further to under seven percent GDP. However, a strong rebound in domestic demand supported in part by increased bank lending, resulted in a larger than anticipated surge in import causing the current account deficit despite healthy growth in export and remittances. External reserves decline markedly in the second half of the last year," the Mission noted.

Dr. Aitken says there was a broad agreement that a decisive policy response was needed to put the economy on a sounder macroeconomic footing, especially, given the current uncertain global environment.

The mission expressed satisfaction with the government's move to address the losses of key state owned enterprises.

Under the SBA, Sri Lanka is able to draw the remaining US$ 800 million of the US$ 2.6 billion SBA.

However, the Central Bank said it has decided not to draw the remainder of the SBA given due to the higher interest rate the Bank has to pay if the last tranche was received.





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Last modified: February 04, 2012.

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