Risks increase in Sri Lanka despite positive economic outlook: IMF

Colombo, Jul 4 (PTI) The International Monetary Fund has advised Sri Lanka of strict compliance for restoring fiscal sustainability and said the island nation's economic outlook remained positive but the downside risks have increased.

A statement by International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura came on Thursday in Washington as the global lender completed its fourth review of Sri Lanka’s bail out leading to the impending release of its fifth tranche.

“Sri Lanka’s performance under the Fund-supported arrangement is generally strong with some implementation risks being addressed. Reforms are bearing fruit, with economic growth strengthening, inflation remaining low, reserves accumulating, and fiscal revenues improving,” Okamura said.

The IMF has warned that in case the shocks materialise, the Sri Lankan authorities should work closely with the IMF to assess the impact and formulate policy responses within the contours of the programme.

The global lender also elaborated on how an inadvertent under reporting of data for government expenditure arrears, which had a ceiling of zero, was identified during a regular staff review of the budget appropriation for this year.

That meants quantitative performance criterion relating to the stock of government expenditure arrears “was missed in the last three reviews and gave rise to a breach of the authority's commitment for the provision of accurate data,” it said, adding, IMF worked closely with the authorities to provide corrected data. The IMF also approved a waiver of non-observance in this regard.

The IMF, therefore, said it advises strict compliance. “Sustained revenue mobilisation is critical to restoring fiscal sustainability and creating fiscal space. Strengthening tax exemption frameworks, boosting tax compliance, and enhancing public financial management to ensure effective arrears management are important.” “Structural reforms are crucial to unlock Sri Lanka’s potential. The government should continue to implement governance reforms and advance trade-facilitation reforms to boost export growth and diversification,” the IMF stressed.

Earlier on July 1, the IMF completed the fourth review of Sri Lanka's USD 2.9 billion bailout programme, allowing the country to draw a USD 350 million tranche from the four-year facility.

Amid the island’s unprecedented economic crisis, the IMF had in March 2023 approved a nearly USD 3 billion facility to assist Sri Lanka’s “efforts to durably restore macroeconomic stability by restoring fiscal and debt sustainability.” The facility helped Sri Lanka revive its bankrupt economy by building its reserves and successfully negotiating debt restructuring with external creditors. PTI CORR NPK NPK