IMF bowls a googly to Sri Lanka

The International Monetary Fund on Wednesday urged Sri Lanka to restore the independence of its Central Bank, tighten monetary policy and urged cut backs in fuel subsidies, to maintain economic stability. The International Monetary Fund on Wednesday urged Sri Lanka to restore the independence of its Central Bank, tighten monetary policy and urged cut backs in fuel subsidies, to maintain economic stability. The Fund says Sri Lanka’s economic growth is being crimped by “a complex tax system, labour market rigidities, poor infrastructure and an underdeveloped capital market that’s constraining private investment”.

The Washington based fund expressed concern that the fiscal and quasi-fiscal costs incurred by the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) that is threatening to undermine fiscal sustainability and economic performance.

In the Public Information Notice, the IMF urged strict monitoring of fiscal risks of public enterprises and “urged the authorities to make further tariff adjustments and proceed with their restructuring.”

Direct subsidies from the budget amounting to one percent of GDP in 2004, and 0.5 percent of GDP so far in 2005, have been paid to CPC to