IMF loan programme dilemma looms amidst Sri Lanka elections this year.
By: Staff Writer
January 26, Colombo (LNW):The International Monetary Fund is set to face tough choices on how to deal with Sri Lanka economic reform programme and the continuation of the US$ 3 billion extended fund facility spanning four years after the 2024 election and how to assess the country’s debt situation, several economic and political analysts said.
The country, which is operating under President Ranil WIckremasunghe led government, since July 2022 secured a $3 billion loan programme with IMF in March 20 2023 that helped pull the cash-strapped nation back from the brink of economic crisis.
“The IMF will have to decide whether to pull the plug on Sri Lanka or not, and by that it will have to decide about its assessment of debt sustainability, a former central bank governor said.
Sri Lanka’s continuation in the economic reform process supported by the International Monetary Fund (IMF) is necessary for stabilisation to evolve into broad-based and steady growth that will ensure a full and lasting economic recovery benefitting the people, senior IMF mission Chief Peter Breuer commented at a media briefing recently.
Under this scenario, sustaining the reform momentum and ensuring timely implementation of all program commitments are critical to rebuilding confidence and putting the recovery on a firm footing that will benefit all people.
The economic reform program implemented by the Sri Lankan authorities is yielding the first signs of recovery with positive real GDP growth in the third quarter of 2023, low inflation, increased revenue collection, and a build-up of external reserves
“The authorities have made commendable progress with putting debt on a path towards sustainability. The execution of the domestic debt restructuring was an important milestone” he pointed out.
‘So our understanding is that negotiations are ongoing, proposals are being exchanged, and it is important for that process to continue and be completed as quickly as possible. It’s our strong expectation that there would be an agreement in principle by the time of the second review” he said.
A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical.
Progress in meeting key commitments under the reform program have been assessed in the context of the second review of the Extended Fund Facility (EFF) arrangement alongside the forthcoming 2024 Article IV consultation assessing Sri Lanka’s economic health during the IMF team’s eight day visit in the island.
However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka’s people.
Swift progress towards the introduction of a progressive property tax is key to ensuring fair burden sharing while sustaining the revenue-based consolidation, senior IMF mission Chief Peter Breuer emphasized.