Sri Lanka IMF deal extended, US$400mn released

June 29, 2010 (LBO) - The International Monetary Fund has released 407.8 million US dollars to Sri Lanka held back after last year's budget went off the rails, and extended the deal by a year on the promise of more responsible fiscal management this year. The IMF held back the disbursement of a third tranche in a two year program in February 2010 after a lavish spending pushed budget deficit to 9.8 percent of gross domestic product in 2009 from a planned 7.0 percent.

The government is due to present a formal budget to parliament today and has already raised several taxes.

"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," Naoyuki Shinohara, IMF's deputy managing director said in a statement.

"At the same time, the budget would allow for much needed reconstruction-related infrastructure investment, while protecting the society’s most vulnerable and addressing the humanitarian needs of those adversely affected by the conflict."

Sri Lanka is recovering from a 30-year war. The government has appointed a tax commission whose recommendations