IMF lauds SL for initiation of landmark reforms | Sunday Observer

IMF lauds SL for initiation of landmark reforms

The International Monetary Fund (IMF) said Sri Lanka’s economy is recovering gradually and hailed its efforts in making progress under the program supported by the Extended Fund Facility (EFF) arrangement.

The international lender commended the country for initiating landmark reforms such as the new Inland Revenue Act, the energy pricing formula and working towards a flexible inflation targetting regime.

“Sri Lanka’s economy is on a gradual recovery path with progress on track. The efforts to improve the policy mix through fiscal consolidation, prudent monetary policy and landmark structural reforms are supporting the economic recovery, despite recent shocks” IMF’s Mission Chief for Sri Lanka Manuela Goretti said while speaking to journalists via a video conference in Colombo last week.

However, the IMF team in Washington states that Sri Lanka’s economic recovery still remains vulnerable to shocks and therefore maintaining the reform momentum is crucial to build resilience and boost sustainable growth.

“We welcome greater flexibility in the exchange rate policy in Sri Lanka as the first line of defence against inflation. The Central Bank of Sri Lanka must continue with the present monetary policy stance while maintaining greater exchange rate flexibility,” Goretti said.

She said the Central Bank allowed greater exchange rate flexibility in the past, a welcome development. The depreciation of the Sri Lankan rupee is less compared to the depreciation of the currency in many emerging markets.

The IMF team also notes that Sri Lanka’s public debt remains extremely large making the country vulnerable to external shocks.

The lender stated that it is critical that the authorities in Sri Lanka stick to budget targets ensuring efficient public investments and spending which are extremely vital for fiscal consolidation.

Responding to what proposals would the IMF make towards public sector reforms in Sri Lanka, the team in Washington said the implementation of the automatic fuel pricing formula is a major achievement towards reducing fiscal risks from state-owned enterprises (SOEs).

They said the implementation of the automatic fuel pricing formula is a major achievement towards reducing fiscal risks from State-owned enterprises (SOEs). Strengthening governance and transparency and timely submission of audit statements by State Owned Enterprises (SOEs) are critical for public sector reforms.

When asked what steps would the IMF propose to mitigate the impact of the reforms on the vulnerable Goretti said initiating targeted social safety nets is crucial so that the poorer sector does not suffer from reforms.

Early this month, the Executive Board of the IMF concluded the fourth review of Sri Lanka’s economic performance under the program supported by a three-year Extended Arrangement under the Extended Fund Facility (EFF) arrangement.

The completion of the review enabled the disbursement of around US$ 252 million to Sri Lanka, bringing total disbursements under the arrangement to around US$ 1,014 million.

The three-year EFF arrangement for a US$ 1.5 billion loan for Sri Lanka was approved by the IMF in June, 2016. 

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