IMF worries about decline in economic activity

.....The IMF team said bringing the fiscal deficit under control would be crucial to restoring macro-economic stability, and acknowledged the limited progress achieved in 2005 to reduce the fiscal deficit, but noted that the targeted reduction in non-interest expenditure had not been achieved. They said most of the budgetary savings were attributable to a decline in interest outlays due to the forced restructuring of the government's domestic debt. "A loose monetary policy has aggravated economic imbalances and fuelled inflation, and has increased the vulnerability of the banking system," the team is said to have told the fiscal and monetary authorities. "They also said authorities should take immediate corrective measures to mop up excess liquidity, allow interest rates to become positive in real terms and dismantle the distortionary subsidised credit facilities. (There is) need to ensure the health of the banking system by dealing promptly with non-viable institutions, and to fully enforce prudential regulations and capital adequacy requirements."....