According to Colombo Page, the staff mission led by Todd Schneider visited Colombo from September 8 - 18 to conduct a routine Post-Program Monitoring discussions following Sri Lanka's successful completion of the US$ 2.6 billion stand-by arrangement in 2012.
The mission met with the Prime Minister, Government, and Central Bank of Sri Lanka (CBSL) officials, as well as civil society and private sector representatives.
Issuing a statement at the end of the visit, Mr. Schneider noted that first half GDP data indicate a pickup in growth, which is likely to continue in the range of 5 to 5.5 percent through end-2015, driven mainly by strong growth in services and a recovery in agricultural output.
However, the increase in consumer spending created by the sharp rise in public wages and salaries has also contributed to a sizeable increase in imports of consumption and other goods, more than offsetting savings from lower oil prices.
"The resulting deterioration in the nonoil trade balance has contributed to persistent downward pressure on Central Bank foreign exchange reserves during the first eight months of the year," the staff mission observed.
The current headline inflation of near zero is expected to end the year around 3 percent while Core Inflation has risen steadily since the beginning of the year, consistent with higher demand for domestic nontradables and a gradual reduction in economic slack.
Risks to outlook are tilted to the downside with more volatile external financing conditions resulting from the expected monetary policy tightening in the U.S. and uncertainties over growth prospects in emerging markets.
The mission welcomed the Central Bank's recent decision to cease setting daily spot prices for the rupee and let market forces play a greater role in determining the exchange rate.