Sri Lanka has to fix SOE losses reduce currency pressure: IMF

Feb 04, 2012 (LBO) – Sri Lanka has to fix losses in key state enterprises as part of polices to slow credit and arrest the loss of foreign reserves, the International Monetary Fund said. “There was broad agreement that a decisive policy response was needed to put the economy on a sounder footing, especially given the current uncertain global environment,” An IMF mission that ended a visit to the island on Friday said.

“In this context, we are encouraged by the recent adjustments in the monetary and exchange rate policy stance, as well as the strong commitment of the government to further reduce the budget deficit to 6.2 percent of GDP.”

A rise energy power prices will only increase the cost of electricity, while a currency depreciation will increase all prices, including the exported items, of which there is an oversupply. Sri Lanka also under-prices diesel, while heavily taxing petrol.

A peg with the US dollar at 113.90 rupees was slightly relaxed to 114.10 rupees Friday.

One reason credit to government is growing strongly is due to money injected by the Central Bank to sterilize or offs