IMF Country Head Address The Key Persons Forum
Sri Lanka’s economy is stabilized and is well poised for growth. During the post war scenario the country recorded a positive economic growth of five to six percent, which is commendable for a country that had been experiencing negative impacts for nearly three decades, International Monetary Fund (IMF) Country Representative Dr. Koshy Mathai said.
He was speaking at The Key Person’s Forum organized by the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) at the Galadari Hotel yesterday.
Dr. Mathai said there is a rise in the inflation rate, which is currently at around seven to eight percent. However, it is important that the country has brought down its double-digit inflation rate to a single digit rate. “The world price increase of fuel, food and domestic vegetable prices” were the main reasons we saw for the increased rate he said.
“The public might have the idea that even though the country enjoys a peaceful environment it has gone back to the difficult time which it used to be, but it is not. Due to the recent floods vegetable prices increased drastically.
The public might think that the Central Bank is not doing the needful, but these are supply shocks. The Central Bank could intervene to bring down the inflation rate by increasing the interest rates, but it will slow down the current economic growth to a slower economic growth, while reducing job creations and increasing the cost of living,” he said.
The IMF does not request government to tighten monetary polices. However, the Central Bank should watch out for secondary shocks that may arise due to inflation demands, demand wage increases and heavy inflows of credit to the economy.
Sri Lanka once had debts to Gross Domestic Product (GDP) at 100 percent. With the approval of the stand by agreement (SBA) of US$ 2.6 billion the IMF requested the Government to bring down the deficit to six percent, but it went up to 10 percent.
If the growth momentum and low interest rate regime continues the country could reduce its current debt to GDP rate from 80 percent to 60 percent by 2014.
The country is moving forward with a stabilized macro economy and controlled fiscal deficit. We expect that the Government will stick to their plans as they used to in achieving real time economic growth.
The initiatives of easing the doing business procedures is timely and crucial as this will support boosting the foreign direct investments (FDIs). In attracting FDIs the Government should focus more on improving the railway track system.