IMF Mission to visit Sri Lanka next week to discuss 2010 Budget

An International Monetary Fund mission will visit Sri Lankanext week to discuss the 2010 budget of President Mahinda Rajapaksa’s newly elected government as it evaluates whether to lend the island more money.

The IMF will conduct a “qualitative assessment” beginning May 12 and wait until the budget is presented to decide whether to grant Sri Lanka a third loan tranche under its $2.6 billion aid package, Koshy Mathai, the fund’s resident representative, said in a telephone interview from Colombo yesterday.

The IMF said Feb. 25 it may consider changing its aid package to Sri Lanka after the South Asian island’s 2009 budget deficit exceeded the Washington-based lender’s target under the program. Sri Lanka’s Treasury Secretary P.B. Jayasundera said April 6 the country plans to nearly halve its fiscal deficit in three years as the end of a 26-year civil war spurs economic growth and boosts revenue.

“On monetary policy and the reserves position we have no issues,” Mathai said. “We are looking for a good budget with some serious commitment to contain the fiscal deficit.”

The government’s 2010 budget is likely to be presented in June after being delayed by the parliamentary election in April, and include a “new tax regime while rationalizing public spending,” Jayasundera said last month.

Sri Lanka’s budget shortfall is targeted to narrow to 5 percent of gross domestic product by 2012, from 9.7 percent last year and 7.5 percent in 2010, Jayasundera said.

Under the IMF loan approved in July, Sri Lankawas forecast to cut its deficit to 6 percent of GDP in 2010 from 7 percent last year, and to reduce it to 5 percent by 2011.

Targets under the IMF program will need to be revised to bolster Sri Lanka’s economic recovery, Jayasundera said.

“A precise deficit figure has not been agreed yet,” Mathai said.

^Bloomberg