By Charumini de Silva
Sri Lankan Authorities are successfully implementing a bold package of policy measures to curb the current account deficit and safeguard reserves and these measures are yielding fruit, IMF Staff Mission Chief John Nelmes said.
He made these remarks at a press conference held at the Central Bank yesterday. The IMF Staff Mission came to Sri Lanka in early this month to discuss economic developments and to discuss about the 8th and the final review of the Stand By Agreement (SBA) facility.
"During the last few months the government took bold policy measures such as the flexible exchange rate regime and changes in orderly priced energy. Given the new policy framework in particular the pursuance of exchange rate flexibility as well as continued strength in remittances and success in attracting capital inflows, international reserves at the Central Bank have now stabilized," he noted.
However, the government revenue collections and interest expenditures are under pressure, but the authorities remain committed to meeting their deficit targets, he added.
"We are expecting that Sri Lankan economy should grow by 6.75% this year as tighter macroeconomic policies work to ease demand to a more sustainable pace. The uncertain global environment poses a downside risk, but the rupee depreciation should provide a boost to the economy going forward. Sri Lanka exports a fairly large amount of exports to EU and this is a down risk for both exports and growth of the economy. It is unfortunately an uncontrollable risk for the Government of Sri Lanka," he explained.
"Inflation is likely to rise to the upper single digits and we thus see the need to keep monetary policy focused on inflation pressure for the time being. We expect that the inflation levels will remain under 10% most likely 9.5%, while the core inflation would be lower than that. While the transition has caused difficulty for many segments of society we share the authorities’ assessment that the new policy framework will strengthen the fundamentals of the economy and lay the basis for sustained economic growth," he added.
"In attracting foreign investors, it is important to have a sound macro-economic stability with controlled inflation levels, he added.
Nelmes said "Automatic price adjustments are not easy. Change of energy prices is very difficult and I highly commend the authorities for tackling this manner in a proper way, which would benefit in the longer run especially in the current account and the BoP. It is important to emphasis that, to recognize these bold packages of policy measures itself is commendable and Sri Lanka being a small open economy these are needed and necessary from the perspective of political and social development."
