Aug 23, Colombo: An International Monetary Fund (IMF) mission today concluded its visit to Sri Lanka to conduct discussions for the fourth review of the IMF's USD 2.6 billion Stand-By Arrangement approved in July last year, and expressed satisfaction with Sri Lanka's economic progress.
The mission led by Mr. Brian Aitken of the Asia and Pacific Department visited Colombo August 11-23 and held discussions with officials from the Central Bank, the Ministry of Finance and Planning, the Presidential Tax Commission, and other government ministries and departments, as well as representatives of civil society and the private sector prior to awarding the fourth tranche of the mega loan.
"The next tranche of US $ 200 million to Sri Lanka is due by late September or early October. Up to now US dollars one billion (Rs. 115 billion) had been disbursed. With the upcoming tranche the total disbursed amount would be US $ 1.2bn (Rs. 138bn)," Aitken told reporters in Colombo Monday.
“Overall economic conditions are improving as expected in the last visit, and the economy is likely to show strong growth this year," the mission said in a statement today at the conclusion of its visit.
While noting that the economic growth still below potential the IMF delegation observed that the country's external balances are strong with gross reserves remaining at comfortable levels and remittance inflows continue at a high rate while tourism prospects continue to improve rapidly.
"We assess the central bank's recent rate cut as appropriate—with bank lending only slowly beginning to rebound, and economic growth still below potential, we see little sign of emerging demand-driven inflationary pressures, and average inflation for the year as a whole is expected to remain in the single digits," the global lender stated.
The IMF observed that country's economic performance under the program has been good criteria set by the IMF by the end of June on domestic budget borrowing, reserve money, and net reserves have been met.
With budget revenues increasing and expenditure restraint continuing, fiscal performance so far remains consistent with achieving the government’s full-year deficit target of 8 percent of GDP, it said.
The lender recommended that if Sri Lanka is to take full advantage of the current favorable environment, it needs to address significant near- and medium-term macroeconomic challenges.
The monetary institute emphasized that Sri Lanka needs to plan a fundamental tax reform to simplify the existing system, broaden the tax base by restricting concessions, spread the tax burden more equitably, and support economic growth, all while boosting the revenue-to-GDP ratio.
While noting that the country's large investment needs cannot be met through the government budget alone, the IMF recommended several measures to draw private-sector investment.
"The authorities' progress thus far on key policy reforms under the program, albeit with some delays, is an important step toward meeting Sri Lanka's medium-term challenges," it said.
The IMF said its review team will now return to Washington to consult with IMF management and will discuss steps toward planning an Executive Board meeting on the Article IV consultation and the fourth review under the Stand-By Arrangement to grant the USD 200 million fourth tranche.