core sector communique

IMF Executive Board Completes Fourth Review Under the Stand-By Arrangement for Sri Lanka and Approves US$212.5 Million Disbursement

September 24, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Sri Lanka's economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 137.8 million (about US$ 212.5 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 826.8 million (about US$ 1,274.8 million).

The SBA was approved on July 24, 2009 (see Press Release No. 09/266) for an amount equivalent to SDR 1,653.6 million (about US$ 2,549.6 million) or 400 percent of Sri Lanka's quota.

The Executive Board today also concluded the 2010 Article IV consultation with Sri Lanka.

Following the Executive Board's discussion on Sri Lanka, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“Sri Lanka’s performance under the program has been satisfactory. Overall economic conditions are improving, and the economy is likely to show strong growth this year on the back of improved fundamentals and political stability. Sustaining high, socially inclusive growth will require substantially higher levels of private investment, underpinned by broad-based structural and financial sector reforms.

“The current favorable environment allows the authorities to focus on addressing the many challenges that remain, particularly in the fiscal and financial sectors. Policies will be geared toward preserving macroeconomic stability, ensuring external competitiveness, facilitating capital market development, and improving the investment climate.

“Fundamental tax reform, including reform of the investment promotion regime, is central to achieving the government’s budget deficit reduction targets while creating the fiscal space for much-needed reconstruction and infrastructure investment, as well as social spending. In this regard, the 2011 budget will be key to demonstrate the government’s continued commitment to the program’s goals.

“Further improvements in monetary policy formulation will provide useful support for macroeconomic stability. The central bank is now in a position to move gradually toward a flexible framework that targets inflation more directly. The recent introduction of more exchange rate flexibility will support such a transition while also helping to maintain competitiveness.

“The government’s financial sector reform agenda is on track. Further reforms include putting in place a deposit insurance system, establishing a regulatory framework for private sector pensions, and deepening capital markets, which will facilitate private investment,”

Mr. Portugal stated.