The International Monetary Fund says Sri Lanka should be ready to raise interest rates if the ongoing political crisis deepens, as the absence of a strong government makes it difficult to keep a tight grip on the public purse.
The Washington based Fund commended the country for emerging from 20-years of ethnic conflict, but said economy faces an uphill task, as key reforms in revenue collection and restructuring Peoples Bank have got caught in political bickering.
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rnThe Directors commended the authorities for maintaining a stability-oriented, prudent monetary policy. rn
rnThis, together with the deficit reduction effort, has been key to lowering inflation and inflationary expectations in 2003. As a result, interest rates have declined, supporting higher private sector credit growth, thus helping to strengthen the economic recovery.rn
rn"The authorities should stand ready to tighten monetary policy if the political situation deteriorates or severe budgetary pressures materialise, to head off a p