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Sri Lanka’s economic plan agreed with the International Monetary Fund would be tough to implement and could slow gross domestic product in the short term, but the economy could expand strongly if it is implemented, Fitch Ratings warned last week.

“High GDP growth has supported Sri Lanka’s credit profile, but the country is likely to face a period of adjustment under its IMF programme that could have a negative effect on economic performance in the short term,” Fitch Ratings said in a statement.

It noted that both fiscal and monetary tightening could be pro-cyclical, while the Central Bank’s planned shift to an inflation-targeting regime could push total public debt higher in local currency terms if the rupee weakened, as nearly half of all public debt is foreign-currency denominated.

“But successful programme implementation should set Sri Lanka’s economy on a more sustainable and robust footing once the adjustment is complete,” the rating agency noted.