November 14, 2006 (LBO) – The International Monetary Fund Tuesday says Sri Lanka’s economy in under siege from galloping inflation, a wider current account deficit, declining official reserves and a high debt service burden. Large fiscal deficits and a high level of public debt are sources of macro-economic instability while inflation is galloping away and reforms lagging, the international lender said.
“Over the medium term, strong fiscal adjustment will be critical to avoiding adverse debt dynamics, which would compromise the ability of the government to meet its poverty reduction and Millennium Development Goals,” the IMF said in a statement.
The fund made its review the island’s performance in the first half of the year, noted that inflation has risen, reflecting pressures from fast credit growth, the pass-through of higher oil prices and increases in wages and pension payments.
The fiscal deficit in the first half of 2006 was contained through adjustment of some current expenditure and capital spending.
Tax revenue grew at a healthy 23 percent, but still fell short of the budget target of 27 percent growth.
“There have been sizable overruns on recurrent expenditure, emerging from larger than b