Colombo: The IMF Thursday warned Sri Lanka about rising inflation and ever-increasing debts, as it proposed that the country should focus on attracting more FDI to shore up its economy.
"Boosting foreign direct investments should be Sri Lanka's priority, We would like Sri Lanka to build on attracting serious investments and not create more debt", Koshy Mathai, the IMF's resident representative told reporters here.
Mathai said Sri Lanka's current inflation was rather worrying.
"We expect it to go up by one to 1.5 percent more this year. Inflation continues to be an issue for Sri Lanka, and authorities should be cautious", Mathai said.
The inflation in April was 6.4 percent.
He said Sri Lanka should focus on curtailing inflation rather than GDP growth.
The IMF expected policy interest rates in Sri Lanka to remain as it is for the rest of the year or at least for the time being till the country steps into single digit inflation.
Sri Lanka allowed the rupee to devalue through a flexible exchange rate. It also tightened fiscal and monetary policy last year to help recover from a balance of payments crisis.
The IMF in its bi-annual review has said that Sri Lanka's revenue collection was among the lowest in Asia, public investment was also among the lowest and the national debt at 80 percent of GDP was too high.
The IMF's stand by facility of USD 2.6 billion was disbursed last year. It came in as a lifeline to Sri Lanka when its reserves fell to a critical low at the end of the war with the LTTE in May 2009.
In February this year the IMF said it had rejected a request from Sri Lanka for a USD 1 billion budgetary support loan.