The International Monetary Fund (IMF) last month delayed the final two installments of its loan to Sri Lanka, demanding the devaluation of the rupee. IMF had postponed the installments, worth $US400 million each, due in June and December.
The IMF has also warned the government that another foreign reserves crisis loomed if it did not heed the request for a “flexible exchange rate.” The fund also pressed for further fuel price hikes and higher domestic interest rates. IMF has also warned that the “non-borrowed reserves have steadily declined” because the Central Bank had sold foreign exchange to defend the value of the rupee. The Central Bank sold foreign exchange worth $416 million in July and $300 million in August to prevent a rupee depreciation. Accumulated debts reached 4,872 billion rupees at the end of June 2011, up 12 percent or 525 billion from the previous year.
Meanwhile, economists say Sri Lanka is not only highly vulnerable to international economic storms but the IMF’s demands also will greatly heighten social tensions within the country. They point out that the government has already implemented severe austerity measures such as increasing taxes and the price of essentials, freezing wages, reducing subsidies and privatizing university education. Aware that popular discontent will deepen with further attacks, the government is waiting until after elections for 23 local government bodies on 8th October to launch ‘austerity measures’ in another round they point out.
However, Minister Basil Rajapakse says the government has steered the country’s economic growth towards the right direction under the far sighted leadership of President Mahinda Rajapakse. Addressing the opening ceremony of the newly built shopping complex in Nugegoda Minister Basil Rajapakse said that the country’s foreign reserves have been increased drastically during last three years. Country’s inflation rate has also being slashed to 6 percent from 21 percent. Minister made these remarks while.