Sri Lanka gets final IMF tranche, asked to watch inflation, state firms

July 21, 2012 (LBO) – Sri Lanka should watch inflation, the budget gap and fix energy enterprise to the economy stable in the future the International Monetary Fund has said ending a three-year bailout program. The IMF released a final 415 million US dollar tranche under a 2.5 billion US dollar bailout package, a somewhat unusual occurrence in Sri Lanka where bickering among the elected ruling class has earlier de-railed many programs half-way.

Sri Lanka runs into frequent balance of payments crises due to contradictory exchange and monetary policy involving manipulating interest rates by the Central Bank in the wake of excessive state spending, usually to manipulate energy prices.

The IMF program which began with a BOP crisis ending in 2009, helped push growth to above 8.0 percent for two years and more importantly helped keep inflation to single digits until early 2011.

But a failure to tighten monetary policy in time, in the face of massive state spending to manipulate energy prices from mid 2011 plunged the country to another balance of payment crisis from around August 2011.

Policy Corrections

In February 2012 Sri Lanka’s energy prices and interest rates were raised reducin