IMF loan unavoidable says ADB

By Poornima Weerasekara

The Asian Development Bank (ADB) yesterday described Sri Lanka’s decision to opt for a US$ 1.9 billion IMF assistance as ‘unavoidable’ but urged the Government to relax the hold on the exchange rate.
ADB said IMF funding would help Sri Lanka to tackle its fiscal deficit and emphasised the need for the government to allow more flexibility in its exchange rate management policy. “The Sri Lankan government has taken several steps to meet its external funding needs. But only 10% have invested in the government treasury bills and bonds,” ADB Sri Lanka Mission’s lead economist Narhari Rao said.
“The decline in remittances would reduce its importance as an option to bridge the balance of payment deficit,” he added.
Although the fiscal deficit is expected to reduce to 7% in 2009 from 7.5% in 2008 due to a sharp decline in exports, the figure was cause for concern.
Rao added that there was a need to adopt a more flexible exchange rate management mechanism.s

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