Contingency plans to mitigate IMF programme risks
The government is now considering crucial contingency plans as the risks in the implementation of the International Monetary Fund (IMF) approved economic reform programme are exceptionally high, official sources divulged.
The need for such plans has arisen following the complex debt restructuring process, unfavourable external environment, elevated risks of persistently high inflation, and challenging political and social situation.
Given Sri Lanka’s weak track record of reform implementation, the programme runs significant risks of slippages regarding fiscal consolidation, revenue mobilisation, and reserves buildup, the IMF country report on the economic outlook and risks, warned.
During the implementations of the programme, policy slippages would need to be corrected by contingency remedial measures in the event of a delay in taking revenue measures.
The cost recovery energy pricing would require further cuts in capital spending on non –priority or low efficiency essential projects, a former Finance Ministry secretary forecasted.
A deeper crisis induced by a further economic fallout, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate programme implementation, he added.
The IMF will provide technical expertise if necessary to the debt- stricken country on ways and means to implement reforms to strengthen the economy and institutions, IMF sources confirmed.
Sri Lanka has secured IMF loans 16 times in the past during 1965-2016. Out of 16 times, the programme was fully implemented on nine occasions.
According to a study conducted by economist Professor Wasantha Athukorala of Peradeniya University, the growth rate of the economy was significantly higher during the years of fully-implemented IMF programmes.
The IMF Extended Fund Facility (EFF) of about US$3 billion to support Sri Lanka’s economic policies and reforms is not the ultimate solution to address Sri Lanka’s ongoing economic problems, he added.
Prof. Athukorala predicted that the tax burden on the people will increase by 119 per cent during the period of 2023- 2028.
According to IMF forecasts the country’s real GDP of Rs 13.291 billion in 2028 would be almost equal to the GDP of Rs.13,235 billion recorded in 2018 showing that the country’s economy is likely to go back to the same level of 10 years ago.
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