Govt. holds back some IMF structural reforms fearing political costs
The government is to hold back some of the structural reforms approved by the International Monetary Fund (IMF) under its economic reform programme for Sri Lanka due to lack of political and public support, official sources said.
Revenue administration reforms including the restructuring of revenue collection authorities are needed to adapt the operations of tax collection agencies, expenditure rationalisation measures by developing strategies to limit growth in the public sector wage bill and public pension spending.
These reforms may generate gains only in the longer term while distributional effects may be sizable in the short run and on the other hand it will create social unrest and public agitation as its economic benefits will not be immediately passed on to the people, several high level public administration officials told the Business Times.
The government is lacking political strength to confront vocal interest groups and in these circumstances, it is compelled to hold back these reforms at a time of impending elections, they added.
Public sector institutional reforms could be undertaken early if the incumbent’s term do not affect election prospects, they said adding that such reforms carry political costs when enacted in periods of weak economic activity,
This was the reason for the present holding up of devising comprehensive strategy to restructure the CPC, CEB, the Road Development Authority, and Sri Lankan Airlines and 52 other state owned enterprises which were yet to submit the audited financial statements and to liberalise Sri Lanka’s highly protective trade regime.
Immediate reforms in foreign investment promotion (BOI), import and export sector state institutions (EDB), port airport and aviation institution restructuring are also put on halt for the time being.
Reforming Sri Lanka’s restrictive and cumbersome investment regime for example, through fully implementing a national single window, reforms to improve the private sector’s access to land, upgrade labour skills, and enhance labour market flexibility are essential to improve private firms’ competitiveness are also on the cards.
It will help develop greater linkages between foreign and local firms (especially SMEs) and encourage informal firms to formalise.
According to the IMF programme report, Sri Lanka would be able to breathe a sigh of relief by 2028 if the government strictly adheres to achieve yearly targets for four consecutive years.
It has to gain the economic growth of 3.1 per cent in 2028 which was the economic growth of the country in 2011.
The yearly revenue and expenditure targets have been stipulated in the report indicating that the failure to achieve these targets will result in dire consequences.
The government is compelled to attract US$950 million in Foreign Direct Investments (FDI) in 2023, IMF report specified while the BOI has secured $211 million in FDI at the end of the first quarter of 2023.
The achievement of $950 million in 2023 is not an easy task when comparing poor track record of foreign investments of $666 million in 2019, $419 million in 2020, $580 million in 2021 and $783 million in 2022.
The IMF FDI targets for the country from 2024 to 2028 are $1280 million, $1365 million, $1432 million, $1529 million and $1549 consecutively.
According to available official data the government has fulfilled 29 per cent of the 39 per cent target in May, 33 per cent of the June target of 55 per cent.
In this 33 per cent achievement, the authorities included pending targets for July such as the passing of anti-corruption act, enactment of the Central Bank law and the removal of import restrictions.
By September, before the IMF policy review, the government has to fulfill 77 per cent of the agreed targets or commitments.
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