By: Isuru Parakrama

November 25, Colombo (LNW): Sri Lanka’s ongoing partnership with the International Monetary Fund (IMF) is vital for the country’s economic recovery and long-term stability, Peter Breuer, the IMF’s Senior Mission Chief for Sri Lanka, said.

In a recent interview with Ada Derana’a @Hydepark, Breuer emphasised the importance of maintaining the Extended Fund Facility (EFF) programme, which has been crucial in stabilising the nation’s economy after years of turmoil.

Breuer explained that the continuation of the IMF programme will help ensure that Sri Lanka’s growth is not only stable but also inclusive, benefitting all segments of the population.

Whilst the nation continues to grapple with challenges such as high levels of poverty, he highlighted that there are positive signs, with indicators from institutions like the World Bank showing a downward trend in poverty levels.

“Poverty remains a significant issue, but the trajectory is improving,” Breuer noted, pointing out that the successful implementation of IMF-backed reforms is essential to further reduce poverty and foster sustainable growth.

Since the commencement of the IMF programme in March 2023, following the staff-level agreement reached in September 2022, Sri Lanka has made noticeable progress. Breuer commended the government’s commitment to fiscal discipline, a cornerstone of the reforms, as Sri Lanka continues to address its structural weaknesses.

The IMF’s involvement goes beyond financial assistance, with the programme holding the government accountable for necessary policy adjustments aimed at enhancing economic resilience.

A critical aspect of the IMF programme is the fiscal framework, with Breuer stressing the importance of maintaining a primary surplus, boosting revenue, and ensuring the quality of fiscal measures.

These parameters, referred to as the “guardrails” of the programme, provide the government with the flexibility to achieve its priorities within the agreed-upon boundaries.

“The government is committed to staying within these guardrails,” he said, adding that the upcoming national budget would be in alignment with the programme’s objectives.

Breuer also reflected on the recent IMF mission in Sri Lanka, which took place from November 17 to 23, during which a staff-level agreement was reached on the third review of the EFF programme.

As part of this agreement, Sri Lanka is set to receive an additional $330 million from the IMF, bringing the total financial assistance under the EFF arrangement to approximately $1.3 billion.

The IMF’s support is seen as instrumental in Sri Lanka’s ambitious reform agenda, which has already shown signs of success, with the economy growing at an average rate of 4 per cent year-on-year.

High-frequency indicators continue to show positive momentum across all sectors, reaffirming the effectiveness of the reforms.

However, Breuer stressed that ensuring macroeconomic stability and restoring debt sustainability would require continued adherence to responsible fiscal policies, including cost recovery pricing for energy, which remains a vital pillar of the IMF-backed programme.

Looking ahead, the IMF has also weighed in on the government’s decision to lift the ban on vehicle imports, a move that could generate significant revenue for the country.

However, Breuer cautioned that the policy should be carefully managed to avoid putting pressure on Sri Lanka’s foreign reserves.