The International Monetary Fund (IMF) has cautioned that policy slippages could threaten Sri Lanka’s path to economic recovery.
Following the conclusion of an IMF staff visit to Sri Lanka on Friday (2), it was noted that the economic reforms implemented by Sri Lankan authorities have continued to support the recovery, evidenced by three consecutive quarters of real GDP growth, low inflation, increased revenue collection, and a build-up of external reserves.
The IMF emphasized that decisive progress on the reform agenda is crucial to ensuring a broad-based and stable economic recovery that benefits all Sri Lankans.
An IMF mission team, led by Senior Mission Chief Peter Breuer, visited Sri Lanka from July 25 to August 2, 2024. Breuer highlighted that Sri Lanka’s recovery is at a critical juncture, and sustaining reform momentum and ensuring timely implementation of all program commitments are essential to solidify the hard-won economic progress and stabilize the economy.
“Maintaining macroeconomic stability and restoring debt sustainability require further efforts to raise fiscal revenues,” Breuer stated. He noted that the 2025 Budget must be supported by appropriate revenue measures and continued spending restraint to achieve the medium-term primary balance objective of 2.3 percent of GDP—a key requirement for restoring Sri Lanka’s debt sustainability.
Breuer pointed out that the planned relaxation of import restrictions on motor vehicles will aid revenue mobilization in 2025. He also mentioned that tax administration reforms could further enhance compliance, including the establishment of a functional VAT refund system for exporters by April 2025. Any measures that could erode the fiscal position must be offset by compensating measures of high quality.
He stressed that avoiding new tax exemptions is essential to reduce corruption risks and prevent fiscal revenue leakages, thereby ensuring a more predictable and transparent tax system. Additionally, maintaining energy prices at cost-recovery levels is crucial to avoiding potential fiscal costs.
Breuer also emphasized the importance of protecting the poor and vulnerable through improved targeting and better coverage of cash transfers. He warned that any policy slippages could jeopardize the recovery.
