News Brief No. 02/92

News Brief: IMF Completes Review Under Sri Lanka's Stand-By Arrangement and Approves US$64 Million Disbursement

September 3, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the third and last review of Sri Lanka's economic performance under a Stand-By Arrangement (SBA), which was approved on April 20, 2001 (see Press Release No. 01/16). The completion of the review enables the immediate release of a further SDR 48.3 million (about US$64 million) from the arrangement, which would bring total disbursements under the IMF-supported program to SDR 200 million (about US$266 million). The current arrangement is to expire on September 19, 2002.

After the Executive Board's discussion on Sri Lanka, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:

"Notwithstanding some policy delays and adverse external shocks, the Sri Lankan authorities have achieved their key goals of halting reserve losses within a flexible exchange rate system, initiating fiscal consolidation and reforms of the tax system and public enterprise operations. The government has improved economic management and initiated important structural reforms under the SBA-supported program despite difficult circumstances.

"Looking ahead, the government's challenge is to sustain the adjustment effort and press ahead with deeper structural reforms. The Fund supports the authorities' two-pronged strategy of macroeconomic stabilization and intensive structural reform. Further fiscal consolidation will enable the release of funds to finance private sector activities and, with prudent public debt management and monetary policy, provide a stable platform for economic growth. The structural reform agenda is linked closely to the poverty reduction strategy already set out in the government's draft poverty reduction strategy document. Perseverance with these measures could pave the way for a Poverty Reduction and Growth Facility arrangement later in 2002.

"The key next steps will be to strengthen the financial sector, restructure public enterprises with private sector participation, improve tax collection, and overhaul the priorities and governance of public expenditure. Initiation of labor market reform would also greatly facilitate the improvement of public sector effectiveness and promote private sector growth.

"Steady progress in the ongoing peace talks would significantly improve business confidence and the willingness of the international community to support reform in Sri Lanka, and thus enhance growth over the medium term. It would also pave the way for much-needed rehabilitation and reconstruction efforts," Mr. Sugisaki said.