COLOMBO: The International Monetary Fund (IMF) on Tuesday warned that prolonged drought in Sri Lanka could raise food and oil imports, with adverse impact on growth, inflation as well as balance of payment.

The warning came as the fund’s team led IMF Mission Chief for Sri Lanka Jaewoo Lee concluded its visit after meeting government authorities. The meetings were held in the back drop of reports that IMF managing director Christine Lagarde would not visit the country on March 21 as initially expected.

The IMF team held discussions on the second review of the Sri Lankan authorities’ economic programme that is being supported by a three-year Extended Fund Facility (EFF), the international lending agency said in a press statement, adding that discussions would continue in Washington in April.

“The mission made significant progress toward reaching a staff level agreement with the government on completion of the second review. Discussions will continue in April in Washington DC during the Spring Meetings of the IMF and World Bank,” Mr Lee was quoted as saying after detailed discussions with Prime Minister, Ranil Wickremesinghe, Finance Minister, Ravi Karunanayake, Governor of the Central Bank of Sri Lanka, Indrajit Coomaraswamy and other government and business representatives.

“Overall, macroeconomic performance in the second half of 2016 was mixed with gradually recovering growth and an uptick in inflation due to the impact of drought and the VAT increase, the IMF further said in its press communiqué published in its website referring to the Value Added Tax which the government last year increased from 11 per cent to 15pc, resulting in a skyrocketing of prices of essential goods.

“The current account remained stable, but the financial account weakened with the resumption of capital outflows. A more prolonged drought could raise food and oil imports with adverse impact on growth, inflation, and the balance of payment,” it added.

It also stated that the mission ‘commends’ the authorities for strong efforts in implementing IMF-supported economic reform programme and announced that all fiscal quantitative targets through end-December have been met but said that progress on implementing structural benchmarks was ‘somewhat uneven’ with some of the reforms ‘lagging behind intended timelines.’

Accordingly, the mission and government authorities have discussed decisive actions to maintain the reform momentum in light of uncertain external environment as Sri Lanka battles difficult fiscal and monetary conditions.

In mid-2016, IMF approved a $1.5 billion loan to Sri Lanka, with $168 million disbursed in two tranches to support the country’s ailing economy.

Published in Dawn, March 8th, 2017