IMF approves $2.6 bln loan to Sri Lanka

COLOMBO, July 25 (Xinhua) -- The Sri Lankan government said Saturday that the International Monetary Fund (IMF) has decided to provide 2.6 billion U.S. dollar loan to Sri Lanka to support the country's reform program.

"The Executive Board of the International Monetary Fund (IMF) today (Friday) approved a 20-month Stand-By Arrangement for Sri Lanka in an amount equivalent to 1.65 billion SDR (about 2.6 billion U.S. dollars) to support the country's economic reform program," the Department of Government Information said in a statement.

Under the arrangement, 206.7 million SDR (322.2 million dollars)becomes immediately available to Sri Lanka while the balance will be phased according to quarterly reviews, said the statement.

With the support of the IMF loan, the Sri Lankan government will reduce the island's budget deficit to 5 percent of GDP by 2011, from a target of 7 percent of GDP this year.

The reform program is also aimed at strengthening the country's international reserve position and restoring external viability.

The government said the island's 15 percent population living below the poverty line and the civilians displaced by the long drawn-out civil war will benefit from the program.

To build confidence in the local financial system, the government will take measures to strengthen the banking system by improving the current regulatory framework and enhancing bank supervision.

The Sri Lankan government had requested a 1.9-billion-dollar loan from the IMF in March, two months before the government troops defeated Tamil Tiger rebels.

Economists said the end of the 30-year-old conflict provides Sri Lanka with an opportunity to undertake economic reform and reconstruction that would be crucial for higher economic growth.

The government is expecting the island's economy to grow by 3.5to 4.5 percent in 2009 despite the prevailing global financial crisis.

Sri Lanka joined the IMF in 1950 and has a quota of 413.4 million SDR (about 644.4 million dollars).