- Achieving IMF program’s objectives should be key priority
- IMF assistance now almost US$ 1 billion
- Many notable achievements on economic front
The International Monetary Fund (IMF) Executive Board’s approval of the third tranche of the Extended Fund Facility (EFF) recognises the strong IMF program performance of Sri Lanka, Senior Mission Chief for Sri Lanka Peter Breuer told a press briefing in Washington, DC on Friday.
With respect to the elections, Breuer said it is up to the people of Sri Lanka to decide on the outcome in a democratic process. “But, let me reiterate from our perspective that achieving the program’s objectives is the key priority to give Sri Lanka a chance to emerge from one of the worst crises in its history.
There may be different proposals on how to achieve that, and we are willing to listen to different views on how these program objectives can be reached. These need to be realistic and achievable within the timeframe of the program.”
“All quantitative targets were met except for the marginal shortfall of the indicative target on social spending. Most structural benchmarks were either met or implemented with some delay,” Breuer said.
He said the third tranche of US$ 336 million brings the total IMF financial support dispersed so far to about $1 billion. The program continues to support Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability mitigate the economic impact on the poor and vulnerable, rebuild external buffers, safeguard financial sector stability and strengthen governance and its growth potential, he said.
“Reforms and policy adjustments are bearing fruit. The economy is starting to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate. Real GDP expanded by three percent year-on-year in the second half of 2023. In May 2024, inflation was 0.9 percent, and gross international reserves increased to US$ 5.5 billion by the end of April. The primary balance improved to a surplus, with tax revenue increasing to 9.8 percent of GDP in 2023,” he said.
He said that despite these positive developments, the economy is still vulnerable and the path to debt sustainability remains knife edged.
Important vulnerabilities associated with the ongoing debt restructuring, revenue mobilisation, reserve accumulation and the banks’ ability to support the economic recovery continue to cloud the outlook. The key to transitioning from stabilisation to a full economic recovery is sustaining the reform momentum amidst strong ownership by the authorities and the Sri Lankan people more broadly.
“We encourage the authorities to continue to build on these hard-won gains and remain steadfast with their reform commitments,” he said. Monetary policy should continue to prioritise price stability, supported by a sustained commitment to refrain from monetary financing and safeguard Central Bank independence, he said.“The continued exchange rate flexibility and gradually phasing out the balance of payments measures remain critical to rebuilding external buffers and to facilitate external rebalancing. Restoring bank capital adequacy and strengthening governance and oversight of state-owned banks are top priorities to revive credit growth and support the economic recovery.”
With regard to dent restructuring, Sri Lanka has made substantive progress towards advancing debt restructuring to restore debt sustainability, he said. A swift finalisation of the Memorandum of Understanding with the Official Creditor Committee and final agreements with the Export Import Bank of China remain a priority. It is also important to complete the restructuring with external private creditors consistent with program targets.
“We encourage the authorities to press ahead with structural reforms to unlock Sri Lanka’s long-term growth potential. Steadfast implementation of the governance reforms would support the authorities’ broader reform agenda. Key priorities include first, further trade liberalisation to promote export and foreign direct investment. Second, labour reforms to upgrade skills and increase female labour force participation. And third, state-owned enterprise reforms to improve efficiency and transparency and to contain fiscal risks, and promote a level playing field for the private sector.”
