IMF approves $426 mln for Sri Lanka
Washington: The International Monetary Fund (IMF) has approved USD 426.8 million in financial assistance to Sri Lanka.
With this the total disbursements under the Stand-By-Arrangement to Sri Lanka has reached about USD 2.13 billion, the IMF said in a statement.
In addition, the IMF Executive Board approved an extension of the arrangement period to July 23, 2012 to allow time for the completion of the eighth and final review.
"While the strong economic recovery continued in 2011, and inflation remained subdued, a combination of rapid credit growth and a tightly managed exchange rate caused the external current account deficit to widen and external reserves to fall sharply. As a result of higher oil prices, the state energy enterprises also continued to run significant losses," said Min Zhu, Deputy Managing Director and Acting Chair of IMF.
Zhu said Sri Lankan authorities have recently introduced a broad package of measures to rein in the current account deficit, stem the reserve loss and bolster fiscal performance.
Monetary and credit policy have been tightened, petroleum and electricity prices increased, petroleum taxes raised and the rupee trading band abolished to allow the exchange rate to adjust more flexibly, he noted.
"The authorities are taking steps to mitigate the adverse impact on the most vulnerable. Fiscal policy will also continue on a consolidation path, with the 2012 Budget targeting a reduction in the deficit to 6.2 per cent of GDP," he said.
Noting that the adjustment measures implemented by the authorities have placed the economy on a more sustainable trajectory, Zhu said it will take time for the new monetary and exchange rate regime to become fully established, and the authorities will need to stand ready to adjust policies further to stabilize external reserves, especially if the global environment becomes less favorable.