The IMF says the Vote-on-Account, passed in parliament last week for government expenditure amounting to Rs. 362 billion for the first four months of 2010 in view of presidential and parliamentary elections, was not inconsistent with government obligations to maintain the fiscal deficit at 6.5 percent in 2010, as per the target agreed upon for the US$ 2.6 billion standby facility approved by the IMF last July.

In a teleconference last morning IMF Residence Representative in Sri Lanka Dr. Koshy Mathai said the government’s performance in meeting IMF targets has so far been ‘strong’ and is expected to meet fiscal targets, maintaining the deficit at 7 percent of GDP end 2009, and other quantitative and qualitative targets.

"We took sometime to understand the fiscal implications of the Vote-on-Account and that is why the approval of the second tranche was delayed. The government is committed to its obligations under the standby arrangement and have not communicated undue deviance from the programme.

"Going for an interim budget at this stage is healthy and although it is impossible to decide on the entire year based on expenditure estimates for four months, the Vote-on-Account is not inconsistent with the IMF programme," Dr. Mathai said.

"The government has shown a strong performance so far and is really committed towards its policy commitments on fiscal and monetary policies. The fist evaluation showed that the government’s policy commitments are in line with the IMF programme," he said.

Dr. Mathai said the government realised the fiscal targets were difficult but was committed to maintain the budget deficit at 7 percent this year.

"The government has so far shown discipline and serious commitment to rationalise expenditure and the fiscal deficit targets are expected to be met with revenue growth which we believe would pick up. The government says it would broaden the tax base instead of increasing taxes, so this is the sensible way to go about it," Dr. Mathai said.

Asked what would happen if the government failed to meet the fiscal deficit target of 7 percent of GDP for 2009, Dr. Mathai said he did not wish to speculate.

"The programme is structured in such a way so that there are quarterly reviews where we can have a dialogue with the government on the challenges," he said.

A review mission is due this week to evaluate Sri Lanka’s performance under the IMF programme for the third disbursement of the US$ 2.6 billion facility of which two disbursements of US$ 329.4 million have been approved, the latest expected during the next few days.

The fiscal deficit has expanded 30 percent year-on-year for the first nine months of this year, but Dr. Mathai said it was difficult to say how the year would end given the entirely different periods of the country’s economy.

"We cannot predict how things would be by the end of the year based on the early stages of the year (before the war ended in May). Things were very different during the first half the year. We are now in a better period," he said.