By Joe Leahy | Financial Times
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The IMF had delayed disbursement of the tranche after Sri Lanka recorded a fiscal deficit of 9.9 per cent of gross domestic product in 2009, missing an earlier agreed target of 7 per cent. Sri Lanka, it appears, has come in from the cold. But it may take the country some time to fully thaw as allegations of rights abuse remain unaddressed.Announcing the budget for 2010 yesterday, the government said it expected a fiscal deficit this year of 8 per cent - still higher than the IMF target.
But the IMF seemed unfazed by this. “Despite the weaker-than-programmed 2009 fiscal performance, the government’s 2010 budget proposal, if carried out, would significantly address past fiscal slippages, mainly through comprehensive tax reforms and sizeable cuts in recurrent spending,” the IMF said in a statement.
The government said economic growth this year may be much as 7 per cent and predicted it could reach 8 per cent a year in the medium term.
The resumption of the IMF funding is good news for a government that is hoping to rebuild bridges with the international community after its conflict with the Liberation Tigers of Tamil Eelam separatist rebel group.
Commentators in the country are fond of accusing international bodies, such as the United Nations, as being somehow sympathetic to the LTTE, which fought for an independent ethnic Tamil homeland in the north and east of Sri Lanka until its defeat last May. Even countries, such as the UK and the US, which banned the LTTE as a terrorist organization and helped crack down on its international financial network, are often accused in Sri Lanka of supporting the rebels.
The country’s increasing alienation was underlined by moves by the UN to try to initiate an inquiry into alleged human rights abuses by both sides during the war. The investigation was thwarted after Sri Lanka martialed support from allies, such as China.
The European Union has also suspended trading privileges under its “GSP-plus” programme, citing human rights and civil liberties concerns.
Sri Lanka has hitherto thumbed its nose at such criticisms. But in recent days, President Mahinda Rajapaksa has begun reaching out, particularly to his giant neighbour, India. He has given reassurances that his country’s growing closeness with China - which is building major infrastructure projects on the island such as a new harbour - is not a threat to India.
The resumption of the IMF package will aid this idea that Colombo is gradually coming in from the cold.
But with accusations of rights abuses still pending and the government unlikely to hold any kind of inquiry that would satisfy its critics in the international community, a complete thaw still looks unlikely.
© Financial Times
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