Govt. says not in debt trap, welcomes IMF funding for reform programme

Feb 27 (Reuters) Sri Lanka's economy will expand between 7-7.5 percent during 2013, the treasury secretary said, shrugging off a lower forecast by the International Monetary Fund which has warned of risks to the island's economy.

"With the supply side acting very favorably, the monetary expansion of 15 percent should generate a decent economic growth rate in the range of 7-7.5 percent," P.B. Jayasundera, told a Foreign Correspondent Association (FCA) Forum late on Tuesday.

The IMF projected growth at 6 percent, saying earlier this month that the economy is slowing more than the government expects, and facing risks from high inflation, lower tax revenue and slow structural reforms in state enterprises.

Jayasundera said inflation will stabilise around 8 percent thanks to improving food supply. He said the government hopes to stick to the budget deficit target of 5.8 percent.
http://www.lankapage.com/NewsFiles/Feb27_1361943227.php

Dr J has not mentioned any thing about unproductive employment in the public sector

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Under present level of unproductive employment State Banks also will becpme another Petroleum Corp (CPC) or Electricity Board(CEB)

Govt. says not in debt trap, welcomes IMF funding for reform programme

* Critical reforms needed in the state sector - Dr. Jaysundera stability and would give space for monetary policy easing
* Pricing reforms to CPC, CEB necessary for financial
February 27, 2013, 9:02 pm
he Island
by Zacki Jabbar

The government was not in a debt trap and cannot request restructuring assistance, but welcomed IMF funding for its reform programme, Treasury Secretary P.B.Jayasundera said.

Asked during an interaction on "Sri Lanka the Way Forward", with the Foreign Correspondents Association at the Galle Face Hotel on Tuesday evening, as to why the Rajapaksa regime had sought one billion US dollars in funding, the Treasury Secretary said that they could not have requested the IMF for debt restructuring assistance since the country was not in a debt trap.

"It was purely a technical issue which made us keep the topic open. If the IMF can support our reform programme, it was most welcome. Our reserves are at a fairly healthy level of Rs.3.6 billion. Its now a case of toping it up to reach the desired target of Rs.7 billion," he said.

adding that funding was available from many sources including the World Bank, ADB, JICA and other donor agencies.

Recurrent expenditure remained at expected levels while there has been a slight reduction in capital expenditure. Difficult adjustments had to be made with oil prices remaining high and a heavy tax base at the customs, the Treasury Secretary noted, while describing the oil and electricity sectors as the two largest enterprises with 55 percent of imports comprising the oil bill.

Critical reforms were required in the state enterprises and that would encompass procurement, human resources, management and pricing. By addressing the problems faced by the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC), the State Banks could be strengthened, expressing confidence that the two large utilities would breakeven by the year end.

"We are not looking at totally removing subsidies for energy and fuel, but would introduce prices that reflect market costs in a gradual manner while focusing on providing relief to the poor," Dr. Jayasundera said.

He said that if pricing reforms were implemented at the CPC and CEB, it would help maintain financial stability in the country, which would allow the Central Bank to ease monetary policy rates by the second half of this year which would stimulate economic growth.

The CEB, was structurally better this year. Coal-fired power generation will increase by 1000 MW. Before the oil hedging issue, it was a case of running to private banks. The focus should be on strengthening the local banks. Thankfully, the drought has ended and the reservoirs were at spill level and this will help hydro power and agriculture .The CPC will contain losses at around Rs.20 billion. All considered, the trade deficit of Rs.9.7 billion for 2012 was not bad, he claimed.

The trade deficit can be kept at manageable levels this year with US$ 6 billion expected in foreign remittances and US$ 3 billion in tourist sector earnings, Dr. Jayasundera said.

Ruling our further high interest foreign commercial borrowing, the Treasury Secretary said that the local banks should be encouraged to generate their own funds.

He said the government was committed to maintaining the budget deficit to 5.8 percent of GDP this year. The economy was expected to grow at 7 to 7.5 percent this year while inflation would reach 8 percent on improving food supplies.

Dr. Jayasundera said the process of refining the VAT system at a retail level was working with the focus currently being on the large tax payers, he said.