Sri Lanka economic shocks are home grown: IMF

Dec 04, 2007 (LBO) – Recent weaknesses in Sri Lanka’s economy have come from internal policies, and a plan to stop market pricing Diesel and Kerosene in 2008 may destabilize the economy further, the International Monetary Fund (IMF) has warned. “Fiscal consolidation, if delivered without delay, would provide scope for private sector-led growth, reduce debt service pressures, and improve investor confidence.”

“Growing vulnerabilities appear to be rooted primarily in domestic policies of the past few years,” the IMF said in its annual Article IV consultations report released today.

“The current trend of high fiscal deficits, if not reversed timely and decisively, could lead to intensified macroeconomic imbalances and deterioration in public debt dynamics, which would require deeper policy adjustments eventually.”

“The medium-term macroeconomic outlook depends critically on peace, the pace
of fiscal consolidation, and other policy adjustments to strengthen the balance of
payments to deal with shocks.”

From 2004, Sri Lanka returned to its historical pattern of high deficits, reversing a short-lived period of prudent economic management which saw inflation falling and real growth picking up.

Indiscriminate energy subsidies