Sri Lanka free floating’ tag ripped by IMF

December 22 (LBO) – Sri Lanka's exchange rate regime has been re-classified to a managed float from free float after violating International Monetary Fund articles and heavy official intervention, the IMF has said. Though fiscal prudence still seems to be out of reach, analysts say Sri Lanka's central bank has started to tighten monetary policy since December which appears to be a steady effort to reduce central bank credit to government

IMF said the curbs on import letters of credit was an exchange control on current payments which was against the country's Article VIII obligations and amounted to exchange controls.

Exchange Control

"These requirements affect approximately less than 3 percent of total imports," the IMF said in its annual review of relations with Sri Lanka known as the Article IV consultations.

"They give rise to an exchange restriction that is subject to Fund approval under Article VIII, Section 2(a) of the Fund's Articles of Agreement. In particular, these measures restrict current payments due in connection with letters of credit."

IMF has subsequently given approval to maintain the controls till November 02, 2007 or until the next Article IV con