Colombo: The International Monetary Fund (IMF) on Tuesday announced that it was happy with the development in Sri Lanka's economy. The announcement came as the IMF released the seventh tranche of a USD 2.6 billion stand-by-facility approved in July, 2009.

"Pretty happy with the way (Sri Lanka's) economy is progressing and how it is run," Koshy Mathai, the IMF's resident representative told reporters here.

The IMF has released USD 1.75 billion from the facility till now and the rest will be disbursed by the middle of this this year and early next year, Mathai said.

The IMF said although the Sri Lankan economy was currently facing high inflation due to internal and external shocks such as high global fuel prices, it should remain under control.

The IMF facility was sought by the Sri Lankan government when its external reserves hit critically low levels in 2009.

Mathai said the IMF has full faith in the Sri Lanka's economy, having done six reviews of the facility and no major policy changes are required to manage the economy.

"Tightening of monetary policy can bring prices down, at the cost of growth. So they need to strike a balance," Mathai said.

However, the IMF advocates flexibility of the exchange rate to help achieve external reserves targets.

(Agencies)