The IMF warned Sri Lanka on Wednesday about its mounting debt burden and projected slower growth for the island nation due to weakening global export demand.
The International Monetary Fund, which earlier in the week rejected a request from Colombo for a $1.0 billion loan, said the country’s debt was worrying.
“The total debt is 80 percent of GDP,” IMF team leader John Nelmes told reporters in Colombo at the end of a mission to review the economy. “This ratio is high. It is something that requires attention.”
Inflation is running at nearly 10 percent and revenue collection is low, he noted.
“The GDP growth for 2012 is projected to have slowed to 6.0 percent,” Nelmes added.
The central bank earlier estimated 7.2 percent growth for last year after the island achieved growth of more than 8.0 percent in both 2010 and 2011 — the first two full years after the end of a decades-long Tamil separatist war.
“The recovery (in Sri Lanka) will likely be constrained… due to a continued slow recovery in Sri Lanka’s main trading partners, particularly the US and the European Union,” Nelmes said.
The government announced last month it was seeking a new cash infusion from the IMF after drawing down a previous $2.6 billion bailout loan six months ago.
Nelmes said the “time is not right” for the IMF to grant another loan to Sri Lanka but the two sides would remain closely engaged.
Treasury chief Punchi Banda Jayasundera had said he wanted the loan to spend on infrastructure while the US-based lender was only willing to lend money to bolster the bank’s foreign reserves.
Nelmes said disagreement on how the money should be disbursed was one of the reasons why the loan was withheld but did not elaborate.
The 2009 IMF bailout was secured when Sri Lanka’s foreign reserves crashed to a dangerously low $1 billion. They now stand at a comfortable $7 billion, according to the central bank.
IMF projects slower growth for Sri Lanka
