Sri Lanka seeks IMF support with alternatives for economic reforms
A high-level delegation, led by Krishna Srinivasan, Director of the IMF’s Asia Pacific Department, this week met with Sri Lanka’s newly elected President Anura Kumara Dissanayake to discuss the continuation of the IMF-supported economic reform programme.
The talks focused on balancing the country’s reform objectives with alleviating the tax burden on citizens, particularly by reducing value-added tax (VAT) and income tax.
IMF Communications Director Julie Kozack acknowledged that Sri Lanka’s economic programme has shown positive results in terms of economic growth, inflation control, and revenue collection.
However, she stressed that vulnerabilities persist, making it essential for Sri Lanka to maintain its reform momentum.
President Dissanayake emphasised his administration’s support for the IMF’s goals but expressed concern about the financial strain on citizens. He assured the IMF that the government is exploring ways to provide tax relief without undermining the programme’s objectives.
The reforms have gained public support, partly due to falling food prices, though the middle class remains burdened by high-income taxes, which are straining household budgets.
To address these concerns, the Sri Lankan government is exploring VAT and income tax relief to reduce financial stress on its citizens.
Both sides also discussed the delay in the third review of the IMF’s Extended Fund Facility (EFF), which has to be postponed due to the upcoming general elections.
President Dissanayake reassured the IMF that his administration remains dedicated to completing the review and continuing the reform programme.
Several senior officials, including Central Bank Governor Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardena, National People’s Power economic expert Harshana Sooriyapperuma along with Senior Advisors to the President Prof. Anil Jayantha and Duminda Hulangamuwa attended the meeting.
A former Treasury Secretary familiar with IMF procedures warned that while easing the tax burden could enhance public support, particularly among the middle class, it could also jeopardise the country’s fiscal stability.
Deviating from the IMF’s fiscal benchmarks could result in delays or reductions in future IMF disbursements, limiting Sri Lanka’s access to much-needed financial support.
The government must find a balance between providing tax relief and meeting IMF obligations.
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