IMF, WB meetings updated of Sri Lankan resilience

Sri Lanka’s resilience in 2008 and thus far this year amidst of a global crisis was highlighted at the spring meeting of the World Bank and the IMF in Washington last week.

A session of the Development Committee of the IMF World Bank Spring meeting in Washington on Sunday. The Development Committee advises the IMF and World Bank on critical development in developing countries. IMF Staff Photo/Stephen Jaffe

This was done by Duvvuri Subbarao, Alternate Governor, on behalf of India’s Home Minister Palaniappan Chidambaram who represents constituent countries Bangladesh, Bhutan, India, Sri Lanka.
During his presentation at the meeting, Subbarao said that Sri Lankan economy was resilient in the face of unfavourable external conditions and registered a growth of 6.0 percent in 2008. High oil and import commodity prices threatened macroeconomic stability resulting in a sharply widening current account deficit and rapidly rising inflation.
It was also pointed out that the global financial turmoil triggered a reversal of capital inflows causing a depletion of reserves and substantial imbalances in the external sector.
“Despite these challenging circumstances, prudent macroeconomic policies supported the growth momentum while headline inflation dropped to 5.2 percent in March 2009 from a high of 28.2 percent in July 2008. The fiscal deficit has remained at a reasonably low level and public debt relative to GDP has been on the decline for the fourth consecutive year,” Subbarao told the IMF, World Bank meeting.
He said that Sri Lanka’s unemployment has dropped to a historic low of 5.2 percent while poverty has been falling for the last several years and is currently around 15.0 percent. Against the back drop of a deteriorating global outlook, growth is expected to drop sharply but would remain around 4.0 percent in 2009, bolstered by prudent macroeconomic policies and expansion of the domestic economy particularly in the eastern and northern provinces of the country.
“As normalcy returns, optimism about a resumption of the high growth trajectory and a step-up in the developmental process is gaining ground,” he had said.
Subbarao also updated about the respective performance of India, Bangladesh and Bhutan.
Sri Lankan contingent to the Spring meeting was led by Public Administration Minister and Deputy Finance Minister Dr. Sarath Amunugama and included Central Bank Governor Nivard Cabraal. Sri Lanka is seeking US$ 1.9 billion as emergency assistance from the IMF to boost the country’s reserves.
In his presentation, Subbarao also told the IMF World Bank meeting that global crisis has put to test the collective leadership of the world and the competence and relevance of multilateral institutions.
“We are grappling with a crisis that has afflicted the entire world whether at the core or in the periphery. Much depends on a quick and internationally coordinated approach to a daunting, but not an insurmountable, challenge,” he added.
It was pointed out that the IMF is central to this endeavour and all of us have a stake in the role of the Fund in orchestrating the road to recovery. The Fund’s capacity to deliver is ultimately connected to how much and how soon we empower it with resources, better governance, greater accountability and a redefined mandate that keeps pace with the requirements of the changing world. Within the IMF too, a radical shift in approach, culture and strategy is urgently warranted so that it divests itself of its past and much of the fallibility that goes with it.
“The world we will emerge into after the crisis will in all likelihood not be the same again, and the challenge is to re-fashion the IMF so that it becomes more relevant, useful and effective in the future,” Subbarao said.
He also said that inflation is subsiding across the world with cooling demand and weakening commodity prices; however, this has not translated into gains in purchasing power in the face of high job losses and eroded profit margins for firms.
“In many emerging economies, this has resulted in overvaluation of currencies, partly reflecting the appreciation in the key reserve currencies. As international reserves have been drawn down to stabilize foreign exchange markets, the cushion against the global crisis has been eroded further,” he added.
The sharp deterioration in the global economic and financial situation has evoked vanguard national efforts towards crisis resolution on a scale, mix and duration that is perhaps unprecedented in recent history.