By Charumini de Silva
In the run-up to forging a ‘high level of relationship’ with the International Monetary Fund (IMF), a new surveillance programme will be discussed with the multilateral donor agency in order to support long-term economic activities of the country.
“With the successful completion of the US$ 2.5 billion Standby Arrangement (SBA) facility, we are now looking at a high-level of relationship with Sri Lanka,” IMF Resident Representative Koshy Mathai said.
He made these remarks at a press conference held at the Central Bank yesterday.
“We would like to extend our support to Sri Lanka on ways of improving revenues, state enterprises, and maintaining deficits and inflation at lower levels. However, we are still in the preliminary stage of discussions on the next programme with Sri Lanka and it will be further discussed during the next mission towards the latter part of this year. Hence, it is very hard to predict the design of the next programme,” he noted.
“Authorities could use the next programme to support any of their long term goals. Thus, the government will have space for other changes such as improving revenue administration and state enterprises,” Mathai said.
He said, “It is observable that there is an unavoidable harm for the economic activities due to the exchange rate volatility. The exchange rates have hurt all parties in the economy, but the decisive policies implemented by the authorities will benefit the economy in the long term encouraging the exporters. With a flexible exchange rate regime, monetary policy can increasingly focus on inflation control to achieve broader macroeconomic stability, while allowing the exchange rate to act as a buffer for external shocks. The exchange rate will be adjusted and in the long term it will help create job opportunities and welfare over time.”
The Foreign Direct Investments (FDIs) in Sri Lanka was very low in the previous year(2010) such as US$ 500 million and last year(2011) it has increased to US$ 1 billion. This year we expect it to be at around US$ 1.5 billion. Sri Lanka has seen a remarkable progress in the country’s economy after the government wiped out the LTTE in May 2009 and ended the three-decade conflict. These achievements are manifestations of peace dividends across the country.
Sri Lanka successfully completed a US$ 2.5 billion bailout programme on Friday (20), the first time an IMF deal was completed. Sri Lanka continues macroeconomic stabilization and structural reform efforts, in particular maintaining exchange rate flexibility while building international reserves, given the uncertain global outlook.
“Headline inflation has increased, but core inflation remains relatively stable, while tighter monetary and credit policies have begun slowing credit and import growth. The external current account deficit is narrowing, and international reserves have stabilized,” he noted.
The global lender agreed Sri Lanka’s current monetary policy stance is appropriate, and stressed that ‘monetary conditions should remain firm in the near term given the high inflation and possible second-round effects.’