IMF cautions Sri Lanka over mounting foreign debt

COLOMBO: Sri Lanka’s economy was among the fastest growing in Asia, but it was vulnerable to sudden external shocks due to high levels of foreign commercial borrowings, the IMF said.
The International Monetary Fund warned that the Indian Ocean island remained vulnerable despite economic gains after ending decades of ethnic war in May 2009.
“Recent improvements in the trade and current account balances notwithstanding, Sri Lanka remains vulnerable to external shocks,” the IMF said after its latest consultations with Sri Lankan authorities.
“The (IMF) staff urges caution with respect to external borrowing (of Sri Lanka) through the banking system.”
Sri Lanka’s foreign borrowings were currently $42.4 billion, up from 39.7 billion at the end of last year, the IMF said noting that it was high.
The IMF said there should be a “more ambitious” debt reduction target and also asked Sri Lanka to improve its tax collection.
Last year, Sri Lanka dropped plans to seek a fresh $1.0-billion loan from the IMF following disagreements over how the money should be spent. However, Sri Lanka later raised the same amount through a bond issue.
Sri Lanka had sought a $2.6 billion bailout at the height of fighting with Tamil separatists in 2009, but the country’s economy grew by a blistering 8.0 percent for two years soon after the war.
It has since moderated with the IMF forecasting a growth rate of 7.0 percent this year, lower than the government’s target of 7.8 percent.