Sri Lanka was given a positive outlook to its economic reform program by the International Monetary Fund (IMF) yesterday.
The IMF mission ended its two week long visit by a staff team to hold discussions on the third review of the country’s three year Extended Fund Facility (EFF) program.
Sri Lanka, they said had satisfactorily met the IMF’s EFF program’s targets and policy performance in terms of ‘fiscal, monetary and reserve accumulation have been strong’.
Special mention was made of the government’s recent introduction of the Inland Revenue Act (IRA), a move championed by the IMF and one that is expected to increase government revenue and make the country’s tax system more transparent and simple.
The IMF mission chief, Jaewoo Lee addressing a media briefing held at the Central Bank acknowledged that the government has had a challenging year which has led to overall macroeconomic growth being ‘mixed’.
“Growth has been subdued and inflationary pressures have increased reflecting the drought since 2016 and floods earlier this year”, said Lee.
The IMF thus projected the economic growth rate to remain below 4.5 percent for 2017 but expected it to pick up in 2018 as agricultural production normalises next year.
This was confirmed by Central Bank Governor Dr Indrajit Coomaraswamy this week who expected overall growth to remain between 4 to 4.5 percent this year.
The IMF however projected the current account deficit to widen this year due to higher imports of fuel and food caused by the drought.
In addition, the Central Bank’s predicted budget deficit of 5 percent of GDP, according to Lee was high due to increased government debt and resulting high interest rates.
Capital inflows have been positive as market confidence grows and this has allowed the government to meet the IMF’s international reserve targets.
As the government awaits a decision on the fourth tranche of the USD 1.5 billion IMF EFF program as the end result of this review, Lee highlighted areas the government could further improve on.
“The government needs to look at further strengthening debt management and having a systematic debt management strategy will help. It is also important that the Central Bank continue with the recent phase of reserve accumulation to improve stability. Commitment to greater exchange flexibility and inflation targets is also important”, said Lee.
More importantly the IMF, similar to its first and second reviews, asked that the government ‘accelerate the phase of implementation of public financial management and reform in State Owned Enterprises (SOEs)’. Pricing formulas for fuel and electricity too figured prominently in the discussions between the IMF and the government,
“The government has said this is very much a priority and we hoped to see a formula for fuel by March 2018 and one for electricity by September 2018”, said the IMF Mission Chief.
(Source: Daily News – By Zahrah Imtiaz)