News

News

Downturn in economy: IMF voices concern
An International Monetary Fund (IMF) delegation currently in Sri Lanka has expressed concern about the current political instability in the country as the foreign exchange reserves dropped, the rupee has begun to depreciate against the dollar and foreign investments slowed down following the political crisis sparked off in November.

The IMF delegation led by Jehangir Aziz, Deputy Division Chief of the IMF's Asia Pacific, arrived in Sri Lanka last Sunday and held a series of review meetings with Prime Minister Ranil Wickremesinghe and Finance Minister K. N. Choksy over the week.

The visit comes ahead of the IMF board meeting in mid February where they would review the granting of the second tranche of the Poverty Reduction and Growth Facilitation programme of US dollars 80 million (Rs. 7.5 billion). The loan, provided at very high concessionary terms, was due to be released in December, but held back due to the political crisis.

The first tranche amounting to US dollars 80 million was released last year. Minister Choksy confirmed that the IMF delegation was concerned about the continuing political instability which would have an impact on implementing the budget proposals.

The IMF delegation is due to have another meeting with Minister Choksy before leaving the country tomorrow night. Mr. Choksy said that for the first time the excess inflow of foreign exchange into the country has taken a reverse process and the rupee which had appreciated against the dolloar and other major international currencies for the first time in 25 years had now started to depreciate moving from Rs. 93 per dollar upto about Rs. 98 per dollar.

Other major international currencies were also appreciating against the rupee with the Sterling Pound reaching Rs. 180 against the rupee from Rs. 169 last week. "Many of the foreign and local investors are adopting a 'wait-and-see policy'. This is a matter of concern to the government," he said.

Mr. Choksy said that the foreign exchange reserves also had dropped. Soon after the political crisis started in November, the IMF and World Bank officials who met in Washington D.C. discussed the economic tranches to Sri Lanka.

The IMF delegation had, however, expressed satisfaction about the government's fiscal programme, implementation of the Value Added Tax and the restructuring programmes. Meanwhile, the depreciation of the rupee is expected to have an impact on the prices of imported items including wheat flour, fuel and milk foods.

Already the country has been facing the impact of the increase of the Value Added Tax (VAT) from 10 per cent 15 per cent. Despite regular assurances from Deputy Finance Minister Bandula Gunawardena that the increase of certain items due to the change of the VAT would be offset by reduction of other Customs duties the prices have been increasing.

Top

Back to News