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IMF Emphasizes Vitality of Sri Lanka’s Economic Recovery Program

In a press conference held in Singapore, Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund (IMF), underscored the critical importance of Sri Lanka’s ongoing economic recovery program. Srinivasan acknowledged that the IMF’s program in Sri Lanka has yielded positive results thus far but cautioned about the challenges ahead.

Responding to inquiries from Zulfick Farzan of News 1st during the press conference on the release of the IMF’s Regional Economic Outlook for Asia and Pacific, Srinivasan stressed the necessity for Sri Lanka to persevere with its recovery efforts.

Highlights from IMF’s Regional Economic Outlook for Asia and Pacific

  1. The Asia-Pacific region demonstrates both resilient growth and rapid disinflation.
  2. Growth, though better than previously anticipated, is projected to decelerate from 5 percent in 2023 to 4.5 percent in 2024. Nevertheless, the region remains a significant contributor, representing approximately 60 percent of global growth.
  3. Growth drivers vary across the region, encompassing robust domestic consumption in most ASEAN countries, substantial public investment in China and India, and a notable surge in tourism in Pacific Island nations.
  4. Disinflation has progressed across the region at varying paces, with some countries experiencing rates above target (e.g., Australia and New Zealand), others meeting central bank targets (emerging markets and Japan), and some facing deflation risks (e.g., China and Thailand).
  5. China presents both opportunities and risks. Policies targeting stresses in the property sector and stimulating domestic demand are poised to benefit both China and the broader region. However, sectoral policies contributing to excess capacity pose challenges for both.
  6. Asian central banks are advised to maintain focus on domestic price stability, avoiding excessive reliance on anticipated interest rate adjustments by the Federal Reserve.
  7. Regional countries are better equipped to manage exchange rate fluctuations due to reduced financial frictions, improved macroeconomic fundamentals, and stronger institutional frameworks. It’s recommended to allow exchange rates to act as buffers against shocks.
  8. Accelerating fiscal consolidation is deemed a pressing priority to alleviate the burden of escalating debt levels and interest costs, while also rebuilding fiscal resilience to address medium-term structural challenges.
  9. Supervisory bodies should remain vigilant in monitoring risks associated with the transmission of tighter monetary policies to corporate and household balance sheets.
  10. Rising industrial policies in Asia-Pacific and globally could lead to unintended consequences such as trade distortions, potentially exacerbating fragmentation risks.
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