Statement at the Conclusion of the IMF Staff Mission to Sri Lanka

Press Release No. 12/116
February 3, 2012

A staff mission led by Dr. Brian Aitken visited Colombo January 25–February 3 to discuss economic developments and policies. The team met with government and Central Bank officials, as well as representatives of civil society and the private sector. The team issued the following statement today at the conclusion of its visit:

“The economy continued to expand rapidly in 2011, with growth likely to come in around 8 percent, and inflation continued to moderate to solid mid-single digit levels. The Government budget deficit also declined further, to under 7 percent of GDP. However, a strong rebound in domestic demand, supported, in part, by increased bank lending, resulted in a larger-than-anticipated surge in imports, causing the current account deficit to widen significantly in 2011, despite healthy growth in exports and remittances. External reserves declined markedly in the second half of 2011.

The discussions focused largely on the government’s strategy to address the external imbalances that emerged in the second half of 2011 and ensure that the economy’s recovery continued without undue disruption. There was 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. In this context, we are encouraged by the recent adjustments in the monetary and exchange rate policy stance, as well as the strong commitment of the government to further reduce the budget deficit to 6.2 percent of GDP in 2012 and address the losses of key state owned enterprises.

The team will return to Washington and continue to assess policy actions and economic developments. We look forward to moving toward completion of the next review of the Standby Arrangement.”



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