IMF says economic reform program in Sri Lanka records positive results
August 03, Colombo (LNW): The economic reform program in Sri Lanka has shown positive results, with three consecutive quarters of GDP growth and a 5.3% year-on-year increase in the first quarter of 2024, Senior IMF Mission Chief. Peter Breuer disclosed following the conclusion of his team’s vsit to review the progress of this initiative.
He stated that Inflation remains under the Central Bank 5% target, and domestic borrowing rates have decreased.
Gross international reserves rose by US $1.2 billion in the first half of 2024, reaching $5.6 billion, while fiscal revenue collections also increased. The focus now is on ensuring these improvements benefit all Sri Lankans.
As Sri Lanka’s recovery remains fragile, maintaining reform momentum and timely implementation of program commitments are essential to secure economic progress and stabilize the economy, he claimed. .
To restore debt sustainability, increasing fiscal revenues is crucial. He noted that the 2025 Budget should focus on appropriate revenue measures and continued spending restraint to achieve a medium-term primary balance objective of 2.3% of GDP.
The planned relaxation of import restrictions on motor vehicles will aid revenue mobilization, and tax administration reforms could enhance compliance, including the establishment of a functioning VAT refund system for exporters by April 2025.
Avoiding new tax exemptions will reduce corruption risks and fiscal revenue leakages, ensuring a more predictable and transparent tax system.
Maintaining energy prices at cost-recovery levels is vital to avoid potential fiscal costs, and protecting the poor through improved targeting and better cash transfer coverage remains critical.
The recent parliamentary approval of the Public Financial Management Act and the Public Debt Management Act marks a significant milestone in improving fiscal discipline and prudent debt management.
Developing a holistic debt management strategy and creating a well-structured Public Debt Management Office will help reduce government financing risks.
Maintaining price stability also requires safeguarding CBSL’s independence. Continued reserve accumulation and exchange rate flexibility are key priorities.
Recent amendments to the Banking Act and related regulations will help safeguard financial stability. Ensuring the banking sector is adequately capitalized will allow it to contribute to economic growth.
The National Anti-corruption Agenda, building on earlier governance plans, is a positive step. Implementing governance reforms outlined in the Governance Diagnostic Report is crucial to addressing corruption risks and correcting past policy missteps.
Creating an enabling environment for these reforms is key to bolstering public confidence and facilitating their implementation.
Sri Lanka has made notable progress towards debt sustainability. The execution of domestic debt restructuring and agreements with the Official Creditor Committee and China EXIM Bank are significant milestones.
The IMF has assessed the “Joint Working Framework” with the bondholder committee and provided feedback to the authorities and financial advisors.
Swift resolution of remaining steps is encouraged to achieve debt sustainability and regain investor confidence. The IMF will continue to support Sri Lanka’s debt restructuring efforts.
