IMF urges Sri Lanka to restore macroeconomic stability
The International Monetary Fund (IMF) has emphasised the urgent need for Sri Lanka to implement a credible and coherent strategy to restore macroeconomic stability and debt sustainability, while protecting vulnerable groups through strengthened, well-targeted social safety nets.
This was stated by IMF Director, Communications Department Gerry Rice in response to questions raised by the Business Times via email when he addressed the regular press briefing in Washington on Thursday.
He added that the “IMF will discuss with Sri Lankan authorities how best they can assist the island nation going forward including Minister of Finance Basil Rajapaksa’s visit to Washington in April”.
The Finance Minister will formally present to the IMF the Government programme and its expectations during IMF meetings. He is expected to seek IMF technical support to find solutions for the current economic crisis
Mr. Rice also mentioned President Gotabaya Rajapksas intention to engage with the IMF to resolve Sri Lanka’s balance of payment problems. The Sri Lankan authorities have also indicated that they are actively considering an IMF-supported programme, he said.
The IMF has said it’s ready to response positively on a request made by the Finance Ministry in providing training and technical assistance on macro-fiscal capacity building for the newly established Macro-Fiscal Unit at the Ministry
In a letter addressed to the Finance Minister, Vitor Gaspar, Director IMF fiscal affairs department stated that they will support the programme on Macro Financial capacity building as per the request made by the Finance Ministry.
The training programme scheduled to be held before the end of this month will expand on the basic forecasting and economic analysis tools presented in March 2021 by the IMF Fiscal Affairs Department (FAD) _ South Asian Training and Technical Assistance Centre (SARTTAC).
Meanwhile Central Bank Governor Ajith Nivard Cabraal said he participated at the meeting the President had with the IMF representatives on March 15 at the President’s Office.
All relevant matters were discussed at that meeting, and hence there was no need for a separate discussion (with him) in the limited time the IMF representatives were in Sri Lanka, he added.
“Now that the President has announced his decision to engage with the IMF in the future, the Central Bank will participate at future meetings to ensure a coordinated way forward in dealing with the issues confronting the economy,”
he disclosed.
IMF Asia and Pacific Department Director Changyong Rhee who was in Sri Lanka on a 2-day official visit listed out six main points in his brief to the President during his meeting with him
on Monday.
Mr. Rhee also highlighted the fact that international markets are completely closed to Sri Lanka right now due to the loss of confidence in the government’s planning of
the economy.
He brought to the notice of the President about the government’s mismanagement of the exchange rate and utilisation of foreign reserves, which consequently led to a lack of funds for debt repayments and substantial devaluation in
the rupee.
The IMF envoy pointed out the inability of the government to control rising inflation and food inflation which now stands at 25 per cent. He cautioned the President on the massive budget deficits over the past two years.
Mr. Rhee also met Finance Minister Basil Rajapaksa and Treasury Secretary S.R. Attygalle. They discussed main observations in the IMF’s Staff Report released in early March following the Article 4 consultation with the Government.
He emphasised the need of fiscal consolidation based on high-quality revenue measures. The IMF has suggested that Sri Lanka should increase income tax and VAT rate to 15 per cent from the current 8 per cent while minimising tax exemptions coupled with revenue administration reforms.
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