by Amal Jayasinghe
(AFP) - `A0`A0 The International Monetary
Fund Wednesday warned Sri Lanka to revive a peace process with
Tamil rebels and step up its tsunami reconstruction or risk
compounding already serious economic woes.
Large fiscal deficits and a high level of public
debt are sources of macro-economic instability while inflation
is galloping away and reforms lagging, the international lender
"The longer-term challenges facing Sri Lanka
include moving toward fiscal consolidation, implementing
structural reforms that enhance the investment climate and
reviving the peace process," the IMF said in a statement.
The statement, issued after a review of the
country's performance in the first half of the year, noted that
the budget deficit was ballooning, privatisation revenues had
fallen way short of targets and inflation was on the rise.
Annual inflation hit 16.8 percent by the end of
December, reflecting higher food and oil prices, it said adding
that economic growth this year was forecast at 5.3 percent, down
from 5.4 percent in 2004 and 6.0 percent in 2003.
The budget deficit reached 8.25 percent of Gross
Domestic Produt (GDP) in 2004, or 1.5 percentage points higher
than originally estimated. Revenues fell short of the budget
target while expenditure overruns were due to higher subsidies.
The IMF urged Sri Lanka to ensure that oil
prices reflected the actual cost of production and to do away
with subsidies the economy could not afford.
It also noted that although Sri Lanka had a
"fiscal responsibility" law to ensure prudent economic
management by the state it had yet to deliver results and also
called for the independence of the Central Bank.
However, the IMF did commend Sri Lanka for its
"prompt and effective" relief following the December 26 tsunami
that claimed 31,000 lives and left a million people homeless.
"A key ongoing challenge will be to manage the
reconstruction activity in an efficient and transparent manner
by mobilising donor assistance effectively and maintaining
macro-economic stability," the IMF statement said.
It noted that the troubled peace process
must be revived for the economy to recover.
The tsunami was initially seen as uniting the
government and Tamil Tiger rebels to work together to deliver
aid to people affected by the worst natural disaster to hit the
island but it has in fact deepened the divisions.
Sri Lanka's Supreme Court last month virtually
shot down a proposed joint mechanism by the two former warring
parties to share part of the three billion dollars in aid
promised by international donors.
Sri Lanka's peace broker Norway, meanwhile, is
sending Deputy Foreign Minister Vidar Helgesen here Thursday to
try to jumpstart the stalled peace process between Colombo and
the Tamil Tigers.
Diplomatic sources said that Helgesen would try
to salvage the tsunami joint mechanism to ensure that
international donors could support the island's reconstruction
The Colombo government needs the cooperation of
the Tigers to carry out reconstruction work in the island's
north-east, parts of which are held by the guerrillas.
Some of the international donors also insist on
a joint mechanism to deliver aid as they are unable to give
money directly to the Tigers who are outlawed in several
countries, including the US, Britain and India.