Written by Tharushan Fernando
07 Feb, 2016 | 7:15 pm
Sri Lanka has made a formal request from the International Monetary Fund (IMF) for a bailout package, according to the Associated Foreign Press (AFP).
According to AFP, officials have noted that the bailout plan is aimed at helping the struggling economy, after a sharp slowdown in growth and with its budget deficit, widening.
However, the IMF has not released any details on the value of the potential programme, or whether it would be granted.
Sri Lanka saw a 8.0 percent growth for two years after the end of the war in 2009 but has since seen a fall to 4.8 percent in the third quarter of 2015.
The IMF mission, that concluded their tour of Sri Lanka, complimented Sri Lanka on its recent positive economic performance.
“Real GDP growth of 5.2 percent in the first three-quarters of 2015 was achieved in the context of continued low inflation” it said, noting that most sectors have shown positive growth.
The mission pointed out that the exceeding gap between exports and imports had reduced since 2014. This has resulted in the narrowing of the external current account balance to an “estimated 2 percent of the GDP by end-2015, compared to the 2.6 percent in 2014.”
However, the government’s total expenditures have exceeded the revenue, far more than the original budget target resulting in the fiscal deficit for 2015 surpassing what it was initially planned for and predicted that the fiscal deficit could widen further
The mission also commented on the rise in public debt “to over 74 percent of GDP” by the end of 2015 and the outflow of capital has ‘intensified’ and notes that, the overall balance of payments have deteriorated .
In its press release, the IMF mission couples these outflows with the downward pressure of on the rupee and a decline in central gross bank foreign exchange reserves due to short-term capital outflows but also observes that these are signs of an emerging market.
According to the IMF mission, the internal outflows are not alone in affecting the Sri Lankan economy since its growth comes with a backdrop of “Key risks for emerging market and developing economies relate to a weaker global growth environment, market volatility, declining commodity prices, and tighter external financing conditions in the context of global re-balancing”
The mission pointed out that the nation has already taken steps to ‘move macro-economic policies towards a more sustainable path’. In its press release, the IMF mission commented on the market forces greater role in determining the level of exchange in 2015, (which has led to the rupee depreciating by over 9 percent).
Surrounded by a volatile economic environment and global risk factors the IMF mission called on Sri Lanka to ‘bolster its economic defences’.
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