IMF stresses need for Sri Lanka staying in the economic reform process

Sri Lanka’s staying in the economic reform process supported by the International Monetary Fund (IMF) is necessary for stabilisation to evolve into broad-based and steady growth that will ensure a full and lasting economic recovery benefitting the people, senior IMF mission Chief Peter Breuer stated on Friday.

In this context, sustaining the reform momentum and ensuring timely implementation of all programme commitments are critical to rebuilding confidence and putting the recovery on a firm footing that will benefit all people.

The economic reform programme implemented by the Sri Lankan authorities is yielding the first signs of recovery with positive real GDP growth in the third quarter of 2023, low inflation, increased revenue collection, and a build-up of external reserves

“The authorities have made commendable progress with putting debt on a path towards sustainability. The execution of the domestic debt restructuring was an important milestone” he pointed out to reporters at a news conference.

“So our understanding is that negotiations are ongoing, proposals are being exchanged, and it is important for that process to continue and be completed as quickly as possible. It's our strong expectation that there would be an agreement in principle by the time of the second review,” he said.

A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remains critical.

Progress in meeting key commitments under the reform programme have been assessed in the context of the second review of the Extended Fund Facility (EFF) arrangement alongside the forthcoming 2024 Article IV consultation assessing Sri Lanka’s economic health during the IMF team’s eight day visit in the island.   .

However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka's people.

Swift progress towards the introduction of a progressive property tax is key to ensuring fair burden sharing while sustaining the revenue-based consolidation, the senior IMF mission Chief emphasised.

Tax policy measures need to be accompanied by strengthening tax administration, removing tax exemptions, and actively eliminating tax evasion to make reforms more sustainable and to further build confidence among Sri Lanka's creditors to regain debt sustainability to gain their support, he added.

Swift progress towards the introduction of a progressive property tax next year is key to ensuring fair burden sharing while sustaining the revenue-based consolidation, he revealed. .

“The property tax is to be enforced in 2025 as a progressive way of taxation. Meaning that those who can afford it more, those who have more expensive houses or property, will in fact, will have to pay a higher tax,” he explained. (Bandula)