Monday June 18, 2018

Sri Lanka meets fiscal targets, key IMF benchmarks, reserve collections slow: FinMin

Mar 06, 2017 17:14 PM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Sri Lanka has reached fiscal targets and also met key structural benchmark under a program with the International Monetary Fund, but foreign reserve collections has been slow amid bond outflows, Finance Minister Ravi Karunanayake said.

Sri Lanka is currently in talks with an IMF mission over completing the second six month review involving targets in December 2016.

Karunanayake said Sri Lanka has met 14 structural benchmarks.

Under the program Sri Lanka has to meet quantitative performance criteria involving budget deficit before interest costs, net international foreign reserves and inflation below 8.1 percent.

Karunanayake said revenue collections have been strengthened and disciplined expenditure management had been shown to the extent that even some ministers were unhappy.

However international reserve collections had been slow amid exists of foreign investors from rupee bond markets, he said. 

Sri Lanka was also expecting to sell a part of the Hambantota port to China, which had been delayed over protests.

The IMF's June 2016 review was also delayed following the late implementation of value added tax.

Though most targets and benchmarks in an IMF program are set by the partner country itself, a program ensures that at least minimum reforms are carried out in time.

However analysts had pointed out early last year that the IMF program was flawed in not placing a ceiling on domestic assets of the central bank to block money printing, which in turn leads to forex reserve losses (when the printed money is mopped up to keep a peg).

Instead the IMF team went with a 'monetary policy clause' involving fairly high inflation ceilings. In December the inflation ceiling was 8.1 percent, which was met.

Without a falling domestic asset target (which reduces domestic credit below potential) it is difficult to collect foreign reserves, except by depreciating the currency and making the entire population poor.

Depreciating the currency pushes up inflation and domestic rupee demand, expanding reserve money, allowing forex reserves to be collected.

The same result can be obtained by selling down domestic assets of the central bank to mop up liquidity. (Colombo/Mar06/2017)


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