Sri Lanka News Updates with Discussions

Aioo .. lets of peelam b1tches attaining peelam

Brainwashed dying for thalavirs daughters cushy life in london...:O

sad and shame...

The IMF's executive directors, in an annual assessment of the island, said the economy and the national currency were threatened by foreign hot money brought into finance the budget deficit, which could reverse at any time.
'Directors noted the risks of public debt distress arising from the increasing reliance on dollar-denominated, short-term commercial debt,' the IMF said in a statement after its annual 'Article IV' consultations.

'Directors took note of the staff's assessment that the real effective exchange rate of the rupee is overvalued, and that the de facto peg risks contributing to external instability by attracting speculative inflows that could reverse quickly.'

Hedge funds that financed Sri Lanka budget deficits in 2007 and early 2008 to the tune of 600 million dollars are already pulling out, and the country's reserves have fallen to 2.6 billion dollars from 3.4 billion dollars two months earlier.

According to Sri Lanka's own real effective exchange rate (REER) index, the rupee was overvalued by about 18 percent in June, hurting the island's exporters but helping foreign hedge funds.

On Thursday Sri Lanka tried to float the rupee but the exercise failed and a new peg had been established at 110 rupees to the US dollar instead of the previous 108, and the central bank is still losing foreign reserves steadily.

IMF said the dollar peg had encouraged hot money to come in. The IMF urged Sri Lanka to break the peg saying 'exchange rate flexibility' would help discourage the flows of de-stabilizing capital.


But Sri Lanka also needed 'a comprehensive policy package that would underpin confidence in the currency.'
'..Directors expressed concern that the combined build-up of macroeconomic imbalances, balance sheet vulnerabilities, high inflation, and external financing pressures poses serious risks to economic stability,' the IMF said.

'Amid increased international risk aversion, raising external finance will become increasingly challenging, and Sri Lanka's external accounts are vulnerable to a reduction in international investor risk appetite.'

IMF said Sri Lanka's recent growth has been 'impressive' and welcomed central bank attempts to tighten monetary policy and bring down inflation. The government was also cutting down energy subsidies and helping the national budget.

But Sri Lanka needed an economic policy makeover, starting with budgets.

'This would need to involve a front-loaded fiscal consolidation, complemented by monetary tightening, steps toward greater exchange rate flexibility, and a further strengthening of financial supervision and regulation,' IMF said.

Most independent analysts had identified Sri Lanka's budgets as the single most de-stabilizing factor, which often overrides central bank monetary policy (fiscal dominance) and causes high inflation and balance of payments crises.

Sri Lanka's budgets improved after a balance of payments and economic crisis in 2000/2001, but fiscal and economic policy reversed in 2004 as the island jettisoned an IMF-backed reform package.

Four years later Sri Lanka's balance of payments is under pressure again. The IMF no longer has an office in Sri Lanka.

Meanwhile the IMF said a 100 percent margin on car import letters of credit should be removed.

But a day earlier, Sri Lanka had already doubled the margin to 200 percent, and revived a raft of additional trade restrictions that were imposed during the 2000/2001 economic crisis.

joined Apr 2008 and Comment 10011

why dont you mind your business and take care of Indian problems