The International Monetary Fund’s (IMF) $2.6 billion loan to Sri Lanka in 2009 is aimed at helping the island nation avert a balance of payments crisis by boosting the central bank’s reserves. The IMF expects Sri Lanka’s economy to grow at more than 3 percent in 2009 and rebound in 2010.
Experts believe, the end of the ethnic conflict will certainly have a positive impact on Sri Lanka’s growth. The Sri Lankan Government’s program is quite ambitious in addressing the problems or the root causes that created the vulnerabilities to the economy.
The IMF’s executive board approved the 20-month arrangement that immediately provided $322 million to the island nation. Sri Lanka aims to cut its budget deficit to 5 percent of gross domestic product and maintain flexibility in the exchange rate to build reserves to cover 3 1/2 months of imports by the end of the IMF lending program.
Sri Lanka’s reserves declined by more than half in the six months that began in September 2008 to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF.
Foreign reserves stood at $1.705 billion in July 2009, which the IMF felt was a level still low. The nation’s reserves growth will depend on the global economic recovery, Sri Lanka will need a flexible exchange rate to attract foreign funds.
Interest rates have come down in Sri Lanka in 2009, taking advantage of inflation at a five-year low, in a bid to spur spending and investment and make up for slowing exports.
Balance of Payment in Sri Lanka from 2004 to 2006
|
Balance of Payments (in U.S.$
millions)
|
2004
|
2005
|
2006
|
|
Current account balance
|
-626
|
-1,161
|
-999
|
|
Current account balance (in percent
of GDP)
|
-3.2
|
-5.3
|
-4.2
|
|
Transfers (private and public)
|
1,358
|
1,704
|
1,670
|
|
Capital account
|
414
|
1,219
|
1,132
|
|
Official financial inflows
|
326
|
770
|
676
|
|
Overall balance
|
-212
|
58
|
133
|
Last Updated on: 17-05-2010
