Much of the country’s post-war infrastructure under the administration of former president Mahinda Rajapakse was funded with Chinese debt and the new government had hoped to retire some of those loans.
Finance Minister Ravi Karunanayake travelled to Washington last month to try to secure loans from the International Monetary Fund and the World Bank. But IMF experts who reviewed Sri Lanka’s economy during a nine-day visit said the Indian Ocean island was not facing an immediate crisis.
Delegation leader Todd Schneider said Sri Lanka’s foreign reserves were comfortable compared to 2009, when it obtained a US$2.6 billion bailout at the height of a civil war. “The situation today is quite different,” Schneider told reporters in Colombo. “We only provide balance of payments support.”
Sri Lanka’s economy is among the fastest growing in South Asia.
But the IMF last year warned the island was vulnerable to sudden external shocks due to high levels of foreign commercial borrowings. By the middle of last year, Sri Lanka’s foreign borrowings stood at US$42.4 billion, up from US$39.7 billion at end 2013, a figure the IMF considers high.
Sri Lanka needs fiscal consolidation to cut debt: IMF
The International Monetary Fund ( IMF) said on Wednesday that Sri Lanka’s economic prospects remain favorable under the new government but a mid-term fiscal consolidation is essential.
An IMF mission led by Todd Schneider was in Sri Lanka to conduct a post-program monitoring after the completion of a 2.6- billion-U.S. dollar stand-by agreement in 2012.
Growth is likely to continue in the relatively robust range of 6-7 percent in 2015. Inflation is expected to remain the low single digits, although some upward pressure may emerge as higher wages and salaries translate into increased demand,” Schneider said.
The IMF agreed with local authorities that sustaining robust growth over the medium term would require continued commitment to policies in support of macroeconomic stability, and structural reforms to enhance productivity and competitiveness.
While hailing the new government’s focus on improving governance and increasing transparency, the IMF voiced concern over the budget deficit of 4.4 percent as challenging” and advised the government to consider contingency measures should revenues fail.
However, Schneider acknowledged the exchange rate did not appear out of line with fundamentals, particularly given the projected improvement in the balance of payments.
Sri Lanka’s rupee depreciated significantly from 129 to 132, hitting a low of 135 in January before regaining stability.