The International Monetary Fund (IMF) said Sri Lanka had shown commitment to meeting its targets for a $2.6 billion loan, but cautioned on risks over the island nation's high budget deficit and borrowed reserves. On the other hand, a group of Diaspora Tamils sent a letter to major Tamil organizations in several countries urging them and their members not to invest in Sri Lanka. Investing in Sri Lanka enriches and empowers the Sri Lankan government, the group explained, and the additional money will ultimately go to the Sri Lankan military and be used to oppress and uproot Tamils in Sri Lanka. The global lender approved $329.4 million second tranche of the loan, which Sri Lanka's central bank has said will in total boost the island nation's reserves to a record high of more than $5 billion. The IMF said the Sri Lankan government had given assurances, it would bring down this year's budget deficit, which economists expect to be around 9 percent of gross domestic product, to 7 percent, as agreed with the global lender. “The government obviously recognizes this is a difficult target to meet. We will just have to see what happens and that will be an issue for future (IMF) reviews,” said Sri Lanka's IMF resident representative, Koshy Mathai. “Sri Lanka is still a country with a high debt stock, and having high debt stock is fundamentally not conducive to good economic management.” The government has not announced its budget balance for the current year. Some Diaspora Tamils decided to take revenge by pressurizing the current government economically by urging Tamils world-wide to keep their money at home, or at least not to invest it in Sri Lanka. A leader of the group said that “Any money that we put into the Sri Lankan economy will eventually make its way to the Sri Lankan military and be used to oppress and uproot the Tamils in Sri Lanka. “There are lots of ways that good-hearted, well-meaning Tamils can wind up enriching the government in Colombo,” said the group's leader. “We want our Tamil friends to be aware that even though Sri Lanka looks like a good place to invest right now, investing there will wind up hurting Ceylonese Tamils.” The central bank estimates Sri Lanka's revenue in the January-August period at 409.2 billion rupees ($3.56 billion), a similar level compared with the same period a year earlier and equivalent to 47.8 percent of the 855 billion rupees forecast for all of 2009.But expenditure for the same period had risen by a fifth year-on-year to 766.8 billion rupees, or 64 percent of the expected spending for 2009. A major portion of the Sri Lanka's foreign currency reserves were from various foreign investments and not from export proceeds and remittances. According to Sri Lanka's IMF resident representative, Koshy Mathai, “there is always a risk that money could go out if (global) investors change their mind.” Nandalal Weerasinghe, an assistant governor at the central bank said the central bank had absorbed $1.4 billion investment in government securities and $200 million from a recent $500 million sovereign bond sale into the reserves. With the second tranche, the IMF has so far lent $658 million, which has also been used to boost the reserves. Ajith Nivard Cabraal, the central bank governor, said a 7 percent budget deficit was still achievable this year.”We are confident that the policies we are presently implementing are sufficient to deal all the vulnerabilities that could be envisaged by anyone,” he said. The IMF approved the second tranche of the loan, after delaying it for almost a month due to Sri Lanka's decision to go for an interim budget in the first four months of 2010, pending a parliamentary election due by April 2010. The IMF said it will be working with the government to limit spending pressures in the period ahead in its interim budget. Sri Lanka, in a supplement to its letter of intent for the IMF loan, has pledged to limit its spending in the first third of 2010.
