An IMF mission is in Colombo meeting with officials of the Central Bank and Ministry of Finance to ascertain Sri Lanka’s progress for the December quarter under the US$ 2.6 billion standby facility agreement.

The mission arrived last Tuesday and is expected be in the island until February 25, an official told the Island Financial Review.

The last time the mission visited Colombo last November, it was satisfied with Sri Lanka’s September quarter performance which lead to the release of the second tranche of the standby facility amounting to close upon US$ 326 million.

"But this time round the mission could throw some light into the burning question of how the government’s fiscal position has turned out in 2009," an economist commented.

According available data, the budget deficit for the first ten months of 2009 is estimated at about 8.4 percent of GDP.

Under the IMF agreement, and the country’s own Fiscal Responsibility Act, the budget deficit target for 2009 is 7 percent of GDP, 6.5 percent for 2010 and 5 percent for 2011.

Economists and analysts say Sri Lanka’s economy is poised for substantial growth, the only significant obstacle to this coming from runway budget deficits—that have almost always been underestimated at the start of a budget year.

The IMF, the Central Bank and even the government acknowledge that maintaining fiscal targets would be a challenge. Some analysts suggest the targets are too optimistic but what matters is the direction of the fiscal-deficit-size each year.

"The government took the first step boldly and defeated terrorism. Now it needs to be bold with the economy. Infrastructure developments will mean nothing if reckless spending, waste and corruption continue as they have all these years," an economists told the Island Financial Review not wanting to be named.