I.M.F. Programme In The Balance

In the event the Government is unable to keep to its pre-arranged 7% fiscal target for last year, it’s difficult to pre-judge and say that the I.M.F. would still be flexible in its programme commitments, an I.M.F. official told The Sunday Leader.

Koshy Mathai, I.M.F.’s Resident Representative in Colombo was responding to media reports which quoted an unnamed Treasury official who had said that the Government of Sri Lanka (G.o.S.L.) would over-shoot the 7% budgetary deficit target set for last year, but that yet the Fund would be flexible in keeping to its commitments to Colombo.

However the disbursement of I.M.F.’s third tranche of U.S.$ 322 million may be in the balance as it would not only look at G.o.S.L.’s 3rd quarter performance for the quarter ended September 30, 2009; but it would also take into account the country’s fiscal performance in the 4th quarter ended December.

G.o.S.L. has given a commitment to the I.M.F. that the budget deficit for last year would be kept at 7% of g.d.p. G.o.S.L.’s year end accounts have however not been completed as yet, with official figures available only up to September 2009.

Mathai said that while it’s right that G.o.S.L. has met its targets for September, but now that they are into February of a new year, it was natural to look at the figures in its totality and not just compartment wise, i.e. per quarter.

“We also want to look at the direction in which the monetary and fiscal vehicles are taking,” he added.

Earlier, Central Bank of Sri Lanka’s (C.B.S.L.’s) Director Economic Research K.D. Ranasinghe said that G.o.S.L. is awaiting the disbursement of I.M.F.’s third tranche at anytime, having had met the required targets for the September 2009 quarter.

He said that the budget deficit in the period under review was reduced to 6.5%, helped by increased tax revenues. That comes under the net domestic financing (n.d.f.) target with G.o.S.L. making a commitment to reduce the overall budget deficit to 7% last year and also to increase tax revenue by 2% of g.d.p. by next year.

Ranasinghe further said that G.o.S.L. had met the net international reserves (n.i.r.) target for September, as well as the reserve money target, i.e. the money in circulation and commercial banks’ deposits with C.B.S.L, thus meeting I.M.F. conditions for the September quarter.

He added that while the reserve money and the n.i.r. targets for the December quarter had also been met, they were awaiting G.o.S.L. accounts to finalise on the third and last target, which is the n.d.f.

The I.M.F. last July pledged a sum of U.S.$ 2.6 billion to Colombo to tide over a balance of payments crisis, with this amount to be disbursed over a 20 month period.
Already two equal tranches totalling U.S.$ 644 million have had  been disbursed, with the first tranche of U.S.$ 322 million being given immediately after the Fund approved the programme for Sri Lanka in July, and the other in November, based on the Government’s fiscal performance for July 2009, said Ranasinghe.

He said that the delay in obtaining the third tranche may have had been due to the elections. But Mathai said that the delay had nothing to do with the elections.
“It is because the Fund also wanted to look at the December quarterly figures before final approval,” he said.

An I.M.F. programme mission told reporters in Colombo last November, soon after the disbursement of the second tranche was approved, that in the event the third tranche is to be disbursed, the team would visit Colombo again this month, imputing that the visit was linked to the release of the third tranche.

However Mathai said visit or no visit, it did not mean that the third tranche was through or not, but said that a mission visit was expected anytime now. He however gave no firm dates for such a visit to take place.