SL meets key performance criteria - IMF | Sunday Observer

SL meets key performance criteria - IMF

Jaewoo Lee
Jaewoo Lee

Despite the many challenges that the Sri Lankan government is faced with, the IMF is optimistic of the progress made on the three-year extended fund facility (EFF).

“Overall, macroeconomic performance has been mixed. Growth has been subdued and inflationary pressure has increased reflecting the drought since late 2016 and the floods earlier this year. Growth is projected to remain below 4.5 percent for 2017 and to rebound next year as agricultural production normalises and infrastructure projects pick up,” IMF Mission Chief Jaewoo Lee said.

“The current account deficit is projected to widen somewhat this year due to higher imports of food and fuel related to the drought and floods. Capital inflows continue, supported by improving market confidence due to the progress in reforms.

“As weather related supply disruptions dissipate, headline inflation is expected to stabilize in the mid-single digits,” he said.

A staff team from the IMF visited Colombo during September 18-29, 2017 to hold discussions on the third review of the Sri Lankan authorities’ economic program that is being supported by the EFF.

The mission commends the authorities for the strong efforts in implementing their IMF supported economic reform program with all quantitative performance targets through end June 2017 having been met and the landmark Inland Revenue Act (IRA) legislation passed by Parliament.

“Fiscal consolidation based on stronger revenues remains essential for reducing high public debt. Further broadening of the tax base is needed to fund the social and development spending in the 2018 budget to remain on this path. “The focus should shift to the smooth implementation of the IRA through supporting regulations and manuals, efficient tax administration and greater awareness and preparedness of taxpayers through media outreach and information dissemination. Strengthening debt management capacity and developing a medium-term debt strategy would also enable effective management of the debt burden going forward,” he said.

Cautioning the government on the inflationary pressure, public financial management and reforms of SOEs, Lee said that more work is remaining to be done.

“We expect to see steady progress in the government’s reform efforts. It will not only bolster competitiveness, but will also boost the private sector led growth. The Central Bank (CB) should continue to remain vigilant

in monitoring inflation pressures and stand ready to tighten monetary policy if needed to contain inflation or credit growth.

“The CB’s drive towards gradually rebuilding reserves should continue. In this regard, the mission welcomes the CB’s commitment to develop a roadmap for flexible inflation targeting and a flexible exchange rate regime, which will require strengthening the legal framework for CB’s governance, improving market functionalities and enhancing communication,” he said.

“An important priority is to accelerate implementation of structural reforms in public financial management and SOEs. Large financial obligations of SOEs pose financial risks and need to be managed by enhancing oversight of performance indicators, developing SOE-specific reform strategies and following through on fuel and electricity pricing reform,” Lee said.

The mission made significant progress towards reaching a staff-level agreement with the government on completing the third review of the EFF. Discussions will continue in October in Washington DC during the annual meetings of the IMF and the World Bank.