IMF Mission Chief says: SL must build on foreign reserves | Sunday Observer

IMF Mission Chief says: SL must build on foreign reserves

Sri Lanka’s economy could grow beyond 4.5 percent this year, the current projection for this year, IMF Mission Chief for Sri Lanka Jaewoo Lee said in an exclusive interview with the Sunday Observer in Washington.

The International Monetary Fund initially forecast the economy to grow to 4.5 percent this year up from 4.4 percent last year.

“We expect the economy to strengthen this year relative to 2016 which was a challenging year due to floods in the first half, followed by drought in the second,” Lee said.

The Mission Chief noted that despite a challenging year, the Sri Lankan economy had delivered a robust growth.

The monetary fund revised its initial growth forecast of 4.3 percent for last year to 4.4 percent.

“What we could see is a slight strengthening of economic growth this year compared to last year,” Lee said.

However, the mission chief reiterated the concerns it made at the last review in March this year, of the need for Sri Lanka to build on its foreign reserves which is a vital vehicle to strengthen the country’s external position.

The current reserve base stands at around USD 5 billion. The Central Bank expects foreign reserves to grow to around USD 7.2 billion by the end of this year.

The mission chief also noted the concerns regarding structural reforms and delays in introducing a pricing mechanism for energy and publishing statements of Corporate Intents for large State-Owned Enterprises.

“We are holding discussions here in Washington on how to go forward in these areas. There has been delays and shortfalls but significant progress has been made in strengthening foreign reserves,” Lee said.

With regard to tax reforms, a condition of the IMF in its Extended Fund Facility Program with Sri Lanka, that has come under criticism for its regressive nature that burdens the poorer sector, Lee said what needs to be remembered is that Sri Lanka’s tax revenue as a share of the income is one of the lowest in the world and if the country is to borrow more, the burden on the future generations will be intense.

‘To provide essential services without increasing the level of debt is to economise on spending and raise revenue by getting those who could pay,” Lee said.

The Mission chief said the reform program is geared to strengthen the tax system in Sri Lanka and added that Value Added Tax (VAT) is the found to be an efficient tax revenue earning method in the world. The mission chief while commending the efforts being made by the government to implement the IMF-supported economic reform program urged the authorities to accelerate implementation of structural reforms in public financial management and state owned enterprises. Lee said if all goes well as planned we will complete the last review by 2019 and conclude the program with Sri Lanka.

The mission hopes to hold its third review of its EFF program by late September or October.