Sri Lanka seeks to renegotiate IMF bailout terms
While the new Sri Lankan government has reiterated its commitment to the US$2.9 billion bailout package agreed upon with the International Monetary Fund (IMF) under the previous administration, it is keen to renegotiate some of the conditions tied to the package.
Further negotiations on this is underway in Washington where a Sri Lankan team is attending the annual IMF-World Bank meetings.
This move reflects the government’s intention to balance fiscal reforms with the need for public relief and economic stability.
To modify the Extended Fund Facility (EFF) programme, the government will need to submit a formal request to the IMF, typically in the form of a letter of intent.
This request must be supported by strong economic or political reasons, particularly if existing tax reforms are proving to be overly burdensome or disruptive.
Kristalina Georgieva, Managing Director of the IMF, offered IMF support during a meeting with Sri Lanka’s delegation led by Central Bank Governor Nandalal Weerasinghe including Finance Secretary Mahinda Siriwardena where the officials conveyed the government’s intention to continue its reform agenda, albeit with some modifications to ease public burdens.
Peter Breuer, the IMF’s Senior Mission Chief for Sri Lanka, expressed optimism about the government’s reform commitment in an official communique.
In an email response to a query he told the Sunday Times Business that key aspects of the programme will be assessed during the upcoming third review of the EFF. The precise dates for these discussions in Colombo are yet to be determined due to the country’s parliamentary elections.
Upcoming reforms, set to take effect in January 2025, involve substantial changes to the tax system. These include the introduction of an imputed rental income tax, adjustments to value-added tax (VAT) rates, the removal of corporate income tax (CIT) exemptions for export services, higher CIT rates for select industries, and increased stamp duties on lease contracts.
These measures aim to bolster fiscal sustainability and achieve a tax-to-GDP ratio of at least 15 percent by 2025.
Prof. Anil Jayantha, an economic advisor to the President, disclosed that the IMF is open to increasing relief measures for the public. He confirmed that the government will soon submit proposals to the IMF outlining their plans to achieve this.
He also emphasised that the administration is keen to implement the anti-corruption measures stipulated by the IMF programme and indicated that the government is negotiating with the IMF to find alternative ways of meeting the programme’s targets.
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