I.M.F. Delays 3rd Tranche

I.M.F. has delayed releasing the third tranche of U.S.$ 330 million under its standby arrangement (s.b.a.) with the Government of Sri Lanka (G.o.S.L.) till after April’s parliamentary elections due to budgetary overruns.
The lead story on these pages in The Sunday Leader issue of February 7, quoting I.M.F.’s Resident Representative Koshy Mathai, said that the disbursement of I.M.F.’s third tranche was in the balance due to possible budgetary overruns.
G.o.S.L. made a commitment to the I.M.F. that last year’s budget deficit would be contained at 7% of g.d.p., but it had overshot this target.
However I.M.F. team leader Dr. Brian Aitken refused to divulge to reporters on Thursday the fiscal deficit, saying that that’s the business of the Treasury which was expected to release those figures soon.
If all had gone well, G.o.S.L. which is already in receipt of I.M.F.’s first two tranches in its U.S.$ 2.6 billion s.b.a., would have had received the third tranche by now.
“We want to see the policy direction in Budget 2010 before committing ourselves to the third tranche,” Aitken said.
He said that the main reason for the budgetary overrun was the increase in domestic borrowings which appeared to be due to infrastructure development works. This overrun amounted to 1½-1¾% of g.d.p. (1% g.d.p.= Rs. 50 billion).
They were currently analyzing those figures.
Aitken said that there is a leeway if the overrun was due to capital projects such as the Hambantota Port and the Southern Expressway, as indicated by the Government. What they don’t want are overruns caused by an increase in recurrent expenditure.
He emphasized the importance of good governance and profitability of public sector bodies such as the Ceylon Petroleum Corporation which he hoped Budget 2010 would address.
Budget 2010 which was scheduled for last November was delayed due to the January Presidential elections, and as a stop gap measure G.o.S.L. instead presented a vote of account covering upto April of this year.
Aitken said that the fact that G.o.S.L. continues to engage in a dialogue with the Fund, as opposed to breaking off talks with the fund gives confidence to foreign investors.
He however said that other than investors making inquiries on Sri Lanka with a positive turnaround effected after the war end, they had not made any tangible investments on the ground.
Aitken further said that though fiscal targets had not been met, monetary targets have been achieved. Though inflation had risen, I.M.F. in a press release said that they were confident that it would not go beyond the higher single digit levels for the year.
It said that inflation has been pushed up due to a rise in commodity prices which were a global phenomenon, with prices expected to settle by mid year.
Aitken further said that with reserves totalling U.S.$ five billion, a delay in the disbursement of I.M.F.’s third tranche will not cause a balance of payments problem to G.o.S.L. He said that reserves were fuelled by remittances.
They had been given an assurance that recommendations to be made by the Tax Commission would be incorporated in Budget 2010. Aitken  said that Government revenue fell in the fourth quarter of last year. He also said that the I.M.F. was happy with the performance of the exchange rate.