lkdood
07-28-2009, 05:20 PM
Sri Lankans could be in for hard times after the government agreed with the International Monetary Fund to cut losses at state petroleum and power companies and reduce subsidies, which could trigger price hikes.
The tough economic reforms, which also include curbing military spending, are contained in a “letter of intent” from the Sri Lanka government to the IMF, which sets out economic targets until 2011 in return for a loan. After months of political wrangling between Sri Lanka and western countries, the IMF’s executive board on Friday approved a loan of US$2.6 billion (Dh9.5bn).
The United States, UK and France did not object at Friday’s IMF meeting but abstained during the vote, according to media reports.
The letter of intent noted that if the global economy worsens and hurts Sri Lanka’s exports, remittances and capital flows, the government will consult the IMF on an appropriate policy response.
Sunil Handunnetthi, a member of parliament for the People’s Liberation Front, an opposition party, said the loan would trigger a price hike in such essentials as fuel, electricity and food.
“This is not a happy occasion as it increases our debt … the debt of the people,” an economist who spoke on condition of anonymity said. He added that the government had promised to make public details of the proposed agreement with the IMF before signing the pact, but that has not been done.
The government said fuel subsidies will be targeted to vulnerable groups only, but such schemes have failed in the past.
President Mahinda Rajapaksa faces possible high prices in the midst of planning parliamentary and presidential elections in the next six to eight months.
Kabir Hashim, a parliamentarian from the opposition United National Party, said IMF conditions are normally tough. “To bring down the budget deficit, you have to increase taxes and reduce expenditure. In what areas will they reduce expenditure? On whom will taxes be increased?”
Dushni Weerakoon, a senior economist at the Institute of Policy Studies, pointed out that the conditions are the standard IMF prescription of lower budget deficit, spending cuts and a flexible exchange rate. “Not much has changed,” she said, adding that the most difficult target set is to reduce the budget deficit to five per cent of gross domestic product by 2011.
The deficit for the first quarter of 2009 is four per cent and will probably end the year at 12 per cent. The most it could be reduced to is nine per cent to 10 per cent, the unnamed economist noted.
The high deficit is because of rising government spending, mainly on the war.
Sri Lanka’s debt is rising sharply. According to Ravi Karunanayake, an opposition legislator from the UNP, the country’s debt through domestic and foreign borrowings as of early 2009 was 4,600 billion rupees (Dh147bn) – without the IMF loan – against 1,783bn rupees in 2005.
“The government said there won’t be conditions to the loan. What nonsense! The conditions are tough and the debt goes up,” he said.
http://www.thenational.ae/images/the_national_logo.gif (http://www.thenational.ae/apps/pbcs.dll/article?AID=/20090727/FOREIGN/707269857/1103/NEWS)
The tough economic reforms, which also include curbing military spending, are contained in a “letter of intent” from the Sri Lanka government to the IMF, which sets out economic targets until 2011 in return for a loan. After months of political wrangling between Sri Lanka and western countries, the IMF’s executive board on Friday approved a loan of US$2.6 billion (Dh9.5bn).
The United States, UK and France did not object at Friday’s IMF meeting but abstained during the vote, according to media reports.
The letter of intent noted that if the global economy worsens and hurts Sri Lanka’s exports, remittances and capital flows, the government will consult the IMF on an appropriate policy response.
Sunil Handunnetthi, a member of parliament for the People’s Liberation Front, an opposition party, said the loan would trigger a price hike in such essentials as fuel, electricity and food.
“This is not a happy occasion as it increases our debt … the debt of the people,” an economist who spoke on condition of anonymity said. He added that the government had promised to make public details of the proposed agreement with the IMF before signing the pact, but that has not been done.
The government said fuel subsidies will be targeted to vulnerable groups only, but such schemes have failed in the past.
President Mahinda Rajapaksa faces possible high prices in the midst of planning parliamentary and presidential elections in the next six to eight months.
Kabir Hashim, a parliamentarian from the opposition United National Party, said IMF conditions are normally tough. “To bring down the budget deficit, you have to increase taxes and reduce expenditure. In what areas will they reduce expenditure? On whom will taxes be increased?”
Dushni Weerakoon, a senior economist at the Institute of Policy Studies, pointed out that the conditions are the standard IMF prescription of lower budget deficit, spending cuts and a flexible exchange rate. “Not much has changed,” she said, adding that the most difficult target set is to reduce the budget deficit to five per cent of gross domestic product by 2011.
The deficit for the first quarter of 2009 is four per cent and will probably end the year at 12 per cent. The most it could be reduced to is nine per cent to 10 per cent, the unnamed economist noted.
The high deficit is because of rising government spending, mainly on the war.
Sri Lanka’s debt is rising sharply. According to Ravi Karunanayake, an opposition legislator from the UNP, the country’s debt through domestic and foreign borrowings as of early 2009 was 4,600 billion rupees (Dh147bn) – without the IMF loan – against 1,783bn rupees in 2005.
“The government said there won’t be conditions to the loan. What nonsense! The conditions are tough and the debt goes up,” he said.
http://www.thenational.ae/images/the_national_logo.gif (http://www.thenational.ae/apps/pbcs.dll/article?AID=/20090727/FOREIGN/707269857/1103/NEWS)