Dec 07, Washington, DC: The International Monetary Fund (IMF) Thursday said its Executive Board completed the third review of Sri Lanka's Extended Fund Facility (EFF) arrangement, which enables the disbursement of about US$ 251.4 million.
The Executive Board of the International Monetary Fund (IMF) on December 6, 2017, completed the third review of Sri Lanka's economic performance under the program supported by a three-year extended arrangement under the Extended Fund Facility arrangement.
Issuing a statement following the third review the IMF executive Board said Sri Lanka's fiscal performance has been satisfactory and all targets until September were met.
While the authorities met fiscal targets and legislated the income tax reform, further consolidation is necessary, given Sri Lanka's high debt burden and large gross financing needs, the Board said.
The government's reform program, supported by the IMF, aims to reduce the fiscal deficit, rebuild foreign exchange reserves, and introduce a simpler, more equitable tax system to restore macroeconomic stability and promote inclusive growth.
Following the Executive Board's discussion of the review, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director, said Sri Lanka's performance under the Fund-supported program has remained broadly on track since the second review.
"Macroeconomic and financial conditions have been stable, despite a series of weather-related supply shocks. The authorities remain committed to the economic reforms under the program and have undertaken measures to improve government revenue and accumulate international reserves. Going forward, it is important to build on the progress made and accelerate reforms to further reduce fiscal and external vulnerabilities," Mr. Furusawa said.
According to the IMF Executive Board, the new Inland Revenue Act will make the tax system more efficient and equitable, and generate resources for social and development programs.
"Nevertheless, Sri Lanka's high debt burden, large gross financing needs, and weak financial performance of state-owned enterprises increases the importance of further fiscal consolidation. Timely progress in structural reforms, including tax administration and energy pricing, will support fiscal consolidation," the Board said.
“Along with efforts to deepen the foreign exchange market, it is important to further accumulate reserves and enhance exchange rate flexibility to reduce Sri Lanka's external vulnerability.
“Structural reforms are also needed to enhance competitiveness and promote inclusive growth, including measures to improve trade and investment regimes.”
The review concluded that further buildup of international reserves under greater exchange rate flexibility will help reduce Sri Lanka's external vulnerability.
Sri Lanka's three-year extended arrangement was approved on June 3, 2016, in the amount of about US$ 1.45 billion. Total disbursements made in the three tranches under the EFF arrangement amount to about US$ 759.9 million.