IMF predicts strong growth

The overall economic conditions are improving as expected and the Sri Lankan economy is likely to show a strong growth this year, International Monetary Fund (IMF) (Asia and Pacific Department) Mission Head Dr Brian Aitken said. He was speaking at the fourth review of the IMF Stand-by-Arrangement (SBA) at the Central Bank yesterday.
He said performance under the program has been good. The financial sector continues to be strong. The next tranche will be disbursed by the end of September or in early October this year.
“We monitored the solid data till the end of June. The domestic budget borrowing, reserve money, and net reserves have been met successfully.
With budget revenues increasing and expenditure restraint continuing, fiscal performance so far remains consistent with achieving the Government’s full-year deficit target of eight percent of Gross Domestic Product (GDP) including the reconstruction projects” he said.
The IMF assesses the Central Bank’s recent rate cut as appropriate, with bank lending slowly beginning to rebound and economic growth still below potential.
We see a slight sign of emerging demand-driven inflationary pressures and average inflation for the year. However, as a whole it is expected to remain in the single digits.
A fundamental tax reform is needed and the existing tax system has to be simplified. The tax base needs to be broadened by restricting concessions and spreading the tax burden more equitably to support economic growth, while boosting the revenue-to-GDP ratio, Dr. Aitken said. The resulting fiscal space could allow increased public capital spending on reconstruction and infrastructure as well as social spending to support the vulnerable, but it is clear that the country’s large investment needs cannot be met through the Government budget alone. Therefore, private sector investment will need to play a critical role.
He said to foster this investment, policies will need to be geared toward preserving macroeconomic stability, ensuring external competitiveness, facilitating capital market development and improving the investment climate, which would lay the basis for higher sustainable growth in a post-war environment.(Daily News)