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The International Monetary Fund (IMF) has warned that Sri Lanka's "impressive economic growth" was at risk unless it shored up its balance sheet and trimmed reliance on short-term foreign debt amid the global credit crunch.
The IMF said it expects economic growth to slow to 6.1 percent in 2008, below the central bank's estimated 7 percent and the 6.8 percent recorded last year. It predicted growth of 5.8 percent in 2009.
"(IMF) directors expressed concern that the combined build-up of macroeconomic imbalances, balance sheet vulnerabilities, high inflation, and external financing poses serious risks to economic stability," the IMF said in its annual assessment of Sri Lanka.
It said the global financial crisis, which has drastically cut the availability of credit, had made "Sri Lanka's external accounts ...vulnerable to a reduction in international investor risk appetite."
Sri Lanka has since October 2007 increasingly sought high-is foreign reserve to protect the currency since mid-September. And on Friday, it slapped in place new restrictions on commercial banking that essentially banned non-commercial foreign exchange forward transactions. Currency dealers said they were put in place to stop speculation.

Copyright Reuters, 2008

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