IMF warns Sri Lanka of slower growth

The IMF on Wednesday warned Sri Lanka that its economy may grow more slowly than expected as it urged the island nation to improve its business climate. The IMF mission made the comments after a visit to assess the economy. Mission chief Todd Schneider told reporters in Colombo his talks with business leaders suggested economic conditions had worsened. The IMF expects growth for the current calendar year to be about 6.5 percent, Schneider said, a full percentage point lower than the central bank's recent forecast of 7.5 percent. Lower exports due to weaker overseas markets, slower credit disbursement to the private sector and flat government revenues will drag down growth, Schneider added. The economy recorded eight percent-plus growth rates for two straight years after security forces crushed separatist Tamil Tiger rebels in May 2009 and declared an end to decades of ethnic war. The island logged growth of 6.4 percent last year. "Efforts to boost growth should focus on structural measures such as tariff reforms, enhanced revenue mobilisation and improvements in the general business climate," Schneider said. Sri Lanka must also ensure investments made with foreign borrowing offer healthy returns in order to service external debt, which he described as too high. "New external borrowings should be done with a close eye to sustainability," Schneider said. The government and banks have raised billions of dollars in debt at rates of sometimes over eight percent, making the borrowing among the world's most expensive. Schneider said Sri Lanka’s short-term external debt represented 51 percent of the country's foreign reserves. Central bank data showed the nation's foreign reserves totalled $6.3 billion at the end of July.