Sri Lanka reaches deal with IMF for next six months

ECONOMYNEXT – Sri Lanka has reached a staff level agreement for the next segment of a three year program to stabilize the economy and fix state finances, with a budget in November to be the lynchpin, the International Monetary Fund said.

The IMF warned that state enterprises continue to be fixed, though the budget is deficit improving.

"The authorities have been improving the country’s fiscal position and strengthened its international reserves, but more needs to be done in the area of SOE reforms," the IMF said.

"Upholding the reform momentum will be important for addressing fiscal and external imbalances and meeting the government’s ambitious social and development objectives.

"Renewed effort toward bolstering competitiveness, improving social protection programs, and boosting private sector development will be important for making growth more robust and inclusive."

The IMF said its review for the past six months will go its executive board for approval in December, ater a November budget which will be a ‘prior action’. The review was delayed pending the reaching of a new agreement.

The budget for 2018 is expected to be presented in November 2010. In 2015, a budget expanded state salaries and subsidies, running the deficit off the rails. The central bank resisted a rate increase and printed money driving the country into a balance of payments crisis.

An IMF statement said the central bank must be ready to tighten policy if credit growth picks up.

The central bank stopped printing money and has in fact mopped up liquidity permanently over the several months, allowing foreign reserves to be collected.

Analysts however say in October, liquidity mopping up had reduced and consequently there may be less reserves collected.





The central bank’s main domestic asset stock, though which instability is created in the economy, its Treasury bill stock has remained unchanged in October at around 50 billion rupees, which makes it difficult to collect reserves, analysts say.

The IMF program does not contain a specific performance criteria to reduce the domestic asset stock, so reserve collection each month is uncertain. (Colombo/Oct16/2017)

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