Sri Lanka: IMF commends performance and approves loan By Charles Haviland

The International Monetary Fund (IMF) has strongly praised Sri Lanka's macro-economic performance.

The lending institution says the economy appears to have fundamental strengths.

It has also approved another tranche of a $2.6bn (£1.6bn) loan.

The organisation backed the latest instalment of the loan – nearly $200m dollars – intending it to help the country recover from its war and from the world financial crisis.

This is despite Sri Lanka falling short on its budget deficit target for the second year in succession.

The IMF has also been impressed by tax reform plans announced in the budget two months ago.

It praised Colombo's performance on inflation and especially economic growth, which the IMF's Sri Lanka representative, Koshy Mathai, said had remained impressive despite 30 years of war.

"What was miraculous was that the economy somehow was able to manage 5 to 6% growth during these past three decades," Mr Koshy said.

"Coming at it as an outsider, I would have expected that with a conflict that was absorbing so much, that growth would have been far diminished below that. But it wasn't.

"I think it speaks to some fundamental strengths in the economy – a good labour force, natural endowments."

Military expenditure

Many Sri Lankans have been badly hit by steep recent rises in the cost of basic foods.

Dr Mathai admitted these were a problem, but said they were caused by sudden external shortages and that overall inflation was under control.

Shortly after the loan was approved in 2009, the IMF's managing director said it was contingent on Sri Lanka considerably reducing its military expenditure and creating a social safety net for war-displaced people.

Some humanitarian workers say their resettlement grants are too low and the defence budget has in fact continued to climb.

However, the government argues that much of this is now going on civilian development projects.