The recently concluded mission led by Mr. Peter Breuer of the International Monetary Fund (IMF) provided insights into Sri Lanka’s economic trajectory, emphasizing the preliminary positive outcomes of the economic reform program initiated by the authorities.
The statement issued at the end of the mission highlighted encouraging developments, including positive real GDP growth of 1.6 percent year-on-year in the third quarter of 2023—the first expansion in six consecutive quarters. Additionally, the statement underscored achievements such as low inflation, increased revenue collection, and a notable augmentation of external reserves by USD 2.5 billion in 2023.
However, the IMF staff stressed that these improvements must translate into tangible benefits for the people of Sri Lanka. The continuation of the reform agenda is deemed essential for the stabilization to evolve into broad-based and stable growth, ensuring a comprehensive and lasting economic recovery.
The upcoming second review of the Extended Fund Facility (EFF) arrangement, coupled with the 2024 Article IV consultation, will formally assess the progress in meeting key commitments under the IMF-supported program. The importance of sustaining the reform momentum and ensuring the timely implementation of all program commitments was underscored to rebuild confidence and secure a solid foundation for recovery.
Key recommendations outlined in the statement include:
- Progressive Property Tax: Swift progress towards the introduction of a progressive property tax was emphasized to ensure fair burden sharing and sustained revenue-based consolidation.
- Tax Policy Measures: Accompanying tax policy measures with the strengthening of tax administration, removal of tax exemptions, and active elimination of tax evasion to enhance sustainability and build confidence among creditors.
- Monetary Policy: Advocating for prudent monetary policy decisions to keep inflation expectations well anchored and the rebuilding of external buffers through robust reserve accumulation.
- Financial Sector Stability: Urgent finalization of amendments to the Banking Act, implementation of the bank recapitalization plan, and strengthening of the financial supervision and crisis management framework to safeguard the stability of the financial sector.
- Governance Reforms: Adoption of an action plan by the authorities, following the IMF Governance Diagnostic report, to implement recommendations and create an enabling environment for governance and transparency reforms.
- Debt Sustainability: Acknowledging commendable progress in putting debt on a path towards sustainability, the IMF stressed the need for swift completion of final agreements with official creditors and resolution with external private creditors.
The IMF team expressed gratitude for the authorities’ collaboration during the mission and reaffirmed their commitment to supporting Sri Lanka in achieving a full economic recovery from the crisis. Meetings were held with key government officials, central bank representatives, parliamentarians, private sector stakeholders, civil society organizations, and development partners, enriching the team’s understanding of the challenges and potential of Sri Lanka.
