The International Monetary Fund (IMF) on Friday said Sri Lanka had met all the end-December quantitative performance criteria as the authorities have successfully advanced fiscal consolidation and strengthened international reserves. In a statement released following constructive discussions held with the authorities in Colombo and during the Spring Meetings in Washington DC, the IMF mission chief for Sri Lanka, Manuela Goretti said the IMF team reached a staff-level agreement with the Sri Lankan authorities on the fourth review under an economic reform program supported by a three-year Extended Fund Facility (EFF) arrangement.
“Due to a weather-related spike in food prices, inflation exceeded the upper limit for the inner band for December, but has since fallen back within the inner band. The authorities are taking actions to implement all the pending structural benchmarks for this review, despite some delays,” the statement noted.
Whilst noting that Sri Lanka’s exports are also recovering and the recent sovereign bond issuance was successfully oversubscribed, the Mission Chief however warned that the economy remains vulnerable to adverse shocks given the still sizable public debt, large refinancing needs, and low external buffers. The IMF has predicted the island’s real GDP growth to reach 4 percent and inflation to remain below 5 percent in 2018.
“Subject to cabinet approval of an automatic fuel pricing mechanism—consistent with the EFF-supported program, the Board is expected to consider Sri Lanka’s request for completion of the fourth review in June 2018. The measure would represent a major step towards completing energy pricing reforms in 2018,” the statement by Goretti, highlighted.
Meanwhile, the IMF also emphasized the need to strengthen governance and mitigate fiscal risks from state-owned enterprises progress. The Fund also highlighted that implementing the Inland Revenue Act and other revenue measures in the 2018 budget remains essential for meeting social goals and improving debt dynamics.
“The central bank should continue to remain vigilant in guarding against inflationary pressures, while continuing to build reserves and supporting greater exchange rate flexibility,” the statement added.