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

Press Release No. 11/53
February 18, 2011

An International Monetary Fund (IMF) mission led by Brian Aitken visited Colombo February 9-18 to conduct discussions for the Sixth Review of the $2.5 billion Stand-By Arrangement, approved on July 24, 2009. The mission met with government and Central Bank officials, as well as representatives of civil society and the private sector. The mission issued the following statement today at the conclusion of its visit:

“The economy grew at a strong 7¾ percent in 2010, according to current estimates. Inflation has increased but this reflects some recent increases in food prices. Credit growth is in line with earlier projections, the property market remains subdued, and other signs of demand-driven inflationary pressures are not evident. Against this background, our assessment is that current monetary conditions are appropriate for supporting the economic recovery. Remittance inflows continue at a high rate and reserves remain at comfortable levels, but the trade deficit is widening as imports recover from their sharp decline in 2009. We continue to believe that the exchange rate should retain the flexibility to ensure that reserves remain healthy and that the economy is competitive.

“The authorities continue to execute policies in line with the program’s goals. Performance against the end-December targets was satisfactory, with the 2010 budget deficit likely to have been held within the target of 8 percent of GDP. The authorities’ structural reform agenda is also broadly on track. The shortfall of net international reserves against the end-2010 target was justified by a larger-than-expected paydown of some public-sector foreign exchange liabilities.

“Recent flooding has significantly damaged Sri Lanka’s harvest of various crops including rice and vegetables, as well as rural infrastructure. Any effect on food prices is likely to be temporary, and given the strength of the Sri Lankan economy, the overall impact on output growth should be limited. Addressing the impact of the floods may require some reallocation of budget resources, but the authorities feel that it is premature at this stage to revisit their targeted deficit for 2011 of 6¾ percent of GDP.

“The IMF team will return to Washington to consult with IMF management and will monitor developments with the aim of holding an Executive Board meeting on the Sixth Review.”



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