IMF calls for structural reforms in Sri Lanka
While the economy is recovering from the terrorist attacks in April 2019 and GDP growth is projected to rise to 3.7 percent this year, the International Monetary Fund ( IMF) said yesterday that ambitious structural and institutional reforms were needed to anchor policy priorities, bolster competitiveness and foster inclusive growth in Sri Lanka.
The statement came at the end of a visit to Sri Lanka from January 29-February 7, by an IMF team led by Manuela Goretti to meet the new administration and discuss its policy agenda. President Gotabaya Rajapaksa, Prime Minister Mahinda Rajapaksa and Central Bank Governor W. D. Lakshman were among leaders and officials they met in Colombo.
Another visit by an IMF team is also likely next month ahead of the seventh and final review of the US$ 1.5 billion Extended Fund Facility ( EFF) in which IMF approval has to be given for Sri Lanka to receive the final (seventh) disbursement.
That disbursement has to take place in April with the programme expiring in June 2020.
The IMF said that “given the high level of public debt and refinancing needs in the country,
Continued from Page 1 ensuring macroeconomic stability calls for fiscal consolidation, prudent monetary policy, and sustained efforts to build international reserves”. It noted that ambitious structural and institutional reforms remain critical to raise the country’s growth potential and promote inclusiveness.
The Fund urged the authorities here to move ahead with growth- enhancing structural reforms to fully harness Sri Lanka’s economic potential and foster greater social inclusion. It welcomed the new government's plans to enhance the efficiency of state- owned enterprises, enabling them to operate on a sound commercial basis. “These plans would need to be supported by a visible commitment to strengthen governance and transparency, notably in the energy sector, and renewed efforts to tackle corruption,” it said.
The Fund said that high frequency indicators continue to improve and growth is projected to rebound to 3.7 percent in 2020, on the back of the recovery in tourism, and assuming that the new coronavirus outbreak will have only limited negative effect on tourism arrivals and other economic activities.
Recently the Central Bank Governor told reporters that growth was likely to exceed 4 percent this year from a low 2.8 percent last year.
The Fund said that preliminary data indicated that the primary surplus target under the programme supported by the EFF was missed by a sizable margin in 2019 with a recorded deficit of 0.3 percent of GDP, due to weak revenue performance and expenditure overruns.
“Under current policies, as discussed with the authorities during the visit, the primary deficit could widen further to 1.9 percent of GDP in 2020, due to newly implemented tax cuts and exemptions, clearance of domestic arrears, and back-loaded capital spending from 2019. Given risks to debt sustainability and large refinancing needs over the medium term, renewed efforts to advance fiscal consolidation will be essential for macroeconomic stability.
“Net International Reserves fell short of the end-December target under the EFF- supported programme in 2019 by about $100 million amid market pressures after the Presidential election and announced tax cuts. However, conditions have since stabilised.
"Renewed efforts are needed to rebuild reserve buffers to safeguard resilience to shocks, under a flexible exchange rate," it said.