core sector communique

Statement at the Conclusion of the IMF Staff Mission to Sri Lanka

June 15, 2012

An International Monetary Fund (IMF) staff mission, led by Mr. John Nelmes, visited Colombo June 4 - 15 to discuss economic developments and policies. The team met with government and Central Bank officials, as well as representatives of civil society and the private sector. The team issued the following statement today at the conclusion of its visit:

“The authorities are successfully implementing a bold package of policy measures to curb the current account deficit and safeguard reserves, and these measures are yielding fruit. Credit growth has slowed and imports have declined. Given the new policy framework—in particular the pursuance of exchange rate flexibility—as well as continued strength in remittances and success in attracting capital inflows, international reserves at the central bank have now stabilized. Government revenue collections and interest expenditures are under pressure, but the authorities remain committed to meeting their deficit targets.

“The Sri Lankan economy should grow by around 6¾ percent this year, as tighter macroeconomic policies work to ease demand to a more sustainable pace. The uncertain global environment poses a downside risk, but the rupee depreciation should provide a boost to the economy going forward. Inflation is likely to rise to the upper single digits, and we thus see the need to keep monetary policy focused on inflation pressures for the time being. While the transition has caused difficulty for many segments of society, we share the authorities’ assessment that the new policy framework will strengthen the fundamentals of the economy and lay the basis for sustained economic growth.

“The team will return to Washington and continue to assess policy actions and economic developments. We look forward to moving toward completion of the eighth and final review of the Stand-By Arrangement. The authorities have indicated their interest in continued, close engagement with the IMF—possibly in the form of financial support for the authorities’ economic development agenda—and we will continue such discussions in the near future.”