Sustained deficit reduction will require difficult choices according to International Monetary Fund (IMF) Resident Representative Sri Lanka and Maldives Koshy Mathai.
The Government will have to adjust their policy in pursuit of sensible revenue enhancement if the country aspires to reduce the deficit.
In addition to that it is indispensable to rationalize government spending and to improve efficiency in the public sector, he said.
The appetite in the international arena to invest in Sri Lanka is quite tangible. Now the atmosphere in Sri Lanka is promising.
The Rupee is remarkably stable for many months. So the IMF expects six percent economic growth this year, Mathai said.
Challenges are in the offing. With the end of the war more possibilities will lie providing the groundwork for sustainable growth.
The country should be exposed to the whims of the investors who are eagerly waiting to operate in Sri Lanka, the IMF Resident Representative predicted.
Mathai shared these views at a presentation organized by the Sri Lanka Shipper s Council at the Ceylon Chamber of Commerce yesterday.
The global projection on economy is quite satisfactory. The world is now coming out of the dark chapter imposed by the economic melt down. But recovery takes time. Recovery speed is still sluggish. So this positive picture regarding the global economy will reflect as a blessing on the Sri Lankan economy also, Mathai said.
To the end of 2009 the fiscal deficit widened mainly due to the interest cost. Investments poured into the country quicker than it was expected.
An ideal instance of this was the investment the country was furnished with for the port development project in Hambantota.
The other reason was the expansion of capital by leaps and bounds. To expand capital, the country needs money. So more and more investments and loans came into the country s coffers, Mathai explained.
The Sri Lankan import sector was the worst jolted area of business due to the global downturn.
The country imports crude oil and other food in great deal. So, the prices of the two figures increased unprecedented.
With the big demand for imports the demand for dollars also went up. So the exchange rate of the rupee vis a vis US dollar was hit. As every dark cloud has a silver lining, the import rate is reduced and the rupee appeared normal once again. The way the Central Bank handled the rupee was very much successful, Mathai added.
The IMF didn t compel the government in any way to secret conditions. IMF is purely economic. The third tranche of the $2.6 billion will reach the country as soon as the new government is formed.
Another reason why the $325 million tranche is disturbed is because the 2010 Budget it is still pending. The $2.6 billion loan will be provided in eight tranches, Mathai said.