Wednesday, May 05, 2010

IMF to discuss Sri Lanka budget as it evaluates aid

By Asantha Sirimanne and Anusha Ondaatjie - An International Monetary Fund mission will visit Sri Lanka next week to discuss the 2010 budget of President Mahinda Rajapaksa’s newly elected government as it evaluates whether to lend the island more money.

The IMF will return to Sri Lanka starting May 12 for discussions on the budget, “which will be the key determinant of the disbursement of the third tranche under the $2.6 billion aid package,” said Koshy Mathai, the fund’s resident representative.

The IMF said Feb. 25 it may consider changing its aid package to Sri Lanka after the South Asian nation’s 2009 budget deficit exceeded the Washington-based lender’s target under the program. Sri Lanka’s Treasury Secretary P.B. Jayasundera said April 6 the country plans to nearly halve its fiscal deficit in three years as the end of a 26-year civil war spurs economic growth and boosts revenue.

“We will be conducting a qualitative assessment,” Mathai said yesterday in a telephone interview. “We are looking for a good budget with some serious commitment to contain the fiscal deficit.”

The government’s 2010 budget is likely to be presented in June after being delayed by the parliamentary election in April, and include a “new tax regime while rationalizing public spending,” Jayasundera said last month.

Rupee Forecast

Sri Lanka’s budget shortfall is targeted to narrow to 5 percent of gross domestic product by 2012, from 9.7 percent last year and 7.5 percent in 2010, Jayasundera said. Under the IMF loan approved in July, Sri Lanka was forecast to cut its deficit to 6 percent of GDP in 2010 from 7 percent last year, and to reduce it to 5 percent by 2011.

Standard Chartered Plc said today it may forecast a faster appreciation in the Sri Lankan rupee this year “if the budget satisfactorily addresses fiscal risks and initiates investment- friendly reforms.”

“Sentiment is strongly in favor of further rupee appreciation and a move toward 105-110 a dollar by the year- end,” Standard Chartered said in a research report today. The bank currently forecasts the rupee will appreciate to 113 per dollar by the end of 2010.

The currency, which has gained 0.7 percent this year, traded at 113.6 as of 3:48 p.m. in Colombo, according to data compiled by Bloomberg.

Targets under the IMF program will need to be revised to bolster Sri Lanka’s economic recovery, Jayasundera said.

“On monetary policy and the reserves position we have no issues,” Mathai said. “A precise deficit figure has not been agreed yet.”

© Bloomberg

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