The Board of the International Monetary Fund has agreed to consider Sri Lanka’s request for completion of its fourth review relating to EFF-supported program in June 2018, subject to cabinet approval of an automatic fuel pricing mechanism.
International Monetary Fund also said reforms of state-owned enterprises are critical to minimizing fiscal risks.
It added that further revenue mobilization can make space for social spending while reducing public debt.
Greater exchange rate flexibility and reserve buffers would strengthen resilience against external shocks, the IMF said.
Strengthening institutions and accelerating structural reforms is key to lay the foundation for more sustainable and inclusive growth in Sri Lanka, the global lender opined.
Manuela Goretti, the IMF mission chief for Sri Lanka highlighted those after having discussions with the Sri Lanka authorities in Colombo and during the Spring Meetings in Washington DC.
The IMF mission said, “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. Further efforts remain needed to strengthen governance and mitigate fiscal risks from state-owned enterprises (SOEs). Progress in implementing the Inland Revenue Act (IRA) 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."
“Under the EFF-supported program, sustaining the reform momentum is critical to strengthening the resilience of the economy to shocks and promoting inclusive and strong growth. The authorities should push ahead with their Vision 2025 objectives, by further advancing fiscal consolidation through stronger fiscal rules and SOE governance; modernizing monetary and exchange rate frameworks; accelerating their inclusive growth reform agenda, through trade liberalization, climate, and gender budgeting; as well as better-targeted social protection programs.”
“Following subdued growth in 2017 due to the lingering effects of weather-related shocks, a recovery is underway as agriculture has started to rebound and food prices decelerated. Real GDP growth is expected to reach 4 percent and inflation to remain below 5 percent in 2018. Exports are also recovering and the recent sovereign bond issuance was successfully oversubscribed. However, the economy remains vulnerable to adverse shocks given the still sizable public debt, large refinancing needs, and low external buffers.”
Manuela Goretti said that the authorities are taking actions to implement all the pending structural benchmarks for this review, despite some delays.