The International Monetary Fund (IMF) on Friday approved the second instalment of its $2.6 billion Standby Arrangement (SBA-loan), putting to rest fears that the government decision not to present a budget for 2010 would have scuttled the facility.
The fund's Executive Board met on November 6 and cleared the way for the release of more than $322 million as the second instalment of the SBA, approved in July.
"The Board reviewed the Sri Lankan government's progress on the implementation of reforms agreed to last July, and the November 6th decision means the second instalment of the country's loan can proceed," a statement from the fund said adding, that "the loan from the IMF is helping rebuild confidence in Sri Lanka's economy as it recovers from conflict and paves the way for donor assistance in its reconstruction effort."
A few weeks ago, a spokesperson for the Fund told the Sunday Times that they were making an assessment of the planned Vote-on-Account and its impact on budget deficit targets.
The Vote-on-Account was presented and approved on Thursday in Parliament.
Central Bank Governor Ajith Nivard Cabraal told the Sunday Times earlier that a Vote-on-Account would not have an impact on budget deficit targets reached with the IMF. Opposition parties had accused the government of resorting to a temporary budget as it was unable to maintain budget deficit targets (as per agreement with the IMF) due to expectations of huge election spending in the months to come.On Friday, Brian Aitken, Head of the IMF's mission to Sri Lanka said though elections were scheduled for next year this could delay planned fiscal reforms, "We believe that the government will still be able to carry out its commitment to submit a full-year budget, consistent with the programme targets which includes tax reform measures once the new parliament is in place."
In a statement released by the fund, Mr Aitken said the financing from the IMF helped avert a sharp economic slowdown that would have hurt all the people of Sri Lanka, but particularly the most vulnerable, and compounded the suffering caused by the war.
It said the government has promised to resettle 70-80 percent of the people displaced by the conflict by the end of this year and complete the resettlement in the first part of 2010.
The IMF said the government intended to reduce defence spending over 2010-11 by a considerable amount, and has begun redeploying military resources toward the reconstruction efforts in the North, such as de-mining, basic infrastructure, and other activities central to resettlement.
"The IMF recognizes that the people of Sri Lanka-and especially those who are most vulnerable cannot be held responsible for the current economic difficulties faced by the country; so our role is to do everything possible to prevent any worsening of the economic situation, the effects of which would be disastrous for the poorest parts of the population," Mr Aitken said.
He said recent economic developments in Sri Lanka had been stronger than expected, with the decline in output growth showing some early signs of bottoming out. The economic outlook has been buoyed as exports have recently shown signs of a recovery, with import growth remaining subdued.
Higher-than-expected remittances since May and the pickup in economic activity are the main drivers in a possible rebound in the months ahead, he was quoted as saying. |
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