(Updates Sri Lankan rupee in fourth paragraph.)
Nov. 23 (Bloomberg) -- The International Monetary Fund said Sri Lanka’s move to devalue the rupee will help boost exports and conserve foreign-exchange reserves.
“We think that the exchange-rate adjustment was a step in the right direction and should help support Sri Lanka’s export competitiveness and safeguard its reserves over the medium term,” Koshy Mathai, the lender’s resident representative in Colombo, said today in an e-mailed response to questions.
Sri Lanka weakened the rupee by 3 percent yesterday to boost overseas sales, saying competing nations have depreciated their currencies. Before the devaluation, the Sri Lankan currency had strengthened 0.5 percent this year. The Indian rupee has slumped 14.2 percent against the dollar in 2011.
Sri Lanka’s rupee was little changed at 113.9 per dollar at 3:04 p.m. in Colombo after falling to its lowest level since March 2010 earlier today. The Colombo All-Share Index declined 0.4 percent at the 2:30 p.m. close.
Sri Lankan export growth of items including tea, textiles and gems is showing signs of easing. Overseas sales rose 19 percent in August from a year earlier, compared with a 72 percent gain in January. Europe accounts for 35 percent of the Indian Ocean island’s overseas sales.
The South Asian nation’s budget deficit will narrow to 6.2 percent of gross domestic product next year from an estimated 7 percent of GDP in 2011, President Mahinda Rajapaksa forecast in his Nov. 21 budget speech.
“Our initial impression is that the budget also seems to be broadly consistent with the authorities’ earlier articulated plans, though we are continuing to study this complex document,” Mathai said. The targeted reduction in the deficit should help Sri Lanka lower its debt-to-GDP ratio, he said.
An IMF mission will return to Colombo in January to continue “discussions with the authorities on macroeconomic policies,” Mathai said. The fund, which has disbursed $1.75 billion to Sri Lanka under its $2.6 billion loan program, said in September that it would continue talks with the nation’s policy makers before the next tranche is given.
--Editors: Cherian Thomas, Shamim Adam
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