As a sequence of unlocking the International Monetary Fund’s US$ 2.9 billion Extended Fund Facility (EFF), the government has been directed towards an ambitious revenue-based fiscal consolidation.
It has to be accompanied by stronger social safety nets, fiscal institutional reforms, cost recovery-based energy pricing to ensure the state’s ability to support all its essential expenditures, Peter Breuer, the IMF Asia and Pacific Department’s Senior Mission Chief for Sri Lanka said.
He made this observation during a special virtual press briefing held on Tuesday to convey the IMF executive board decision on the approval of the bailout loan for the country.
The Sri Lanka government has to increase tax revenues following a ‘growth-friendly’ procedure ensuring the need of e protecting the poor and vulnerable community, he emphasised.
The EFF programme will pave the way for Sri Lanka to obtain financing of up to $7 billion from the IMF, International Financial Institutions (IFIs) and multilateral organisations, the Presidential Media division revealed.
Sri Lanka will soon receive an initial tranche of EFF amounting to $333 million (amounting to SDR 254 million) which is expected to follow new external financial mobilisation from multilateral agencies including from the ADB and the World Bank, Mr. Breuer said.
He categorically stated that progressive tax reforms have been introduced ensuring the taxation of high income earners but not the middle class or the poor.
He also emphasised that the economic impact of the reforms on the poor and vulnerable will have to be mitigated with suitable measures.
The Senior Sri Lanka Mission Chief outlined the reform programme supported under the EFF arrangement which is built on strong policy measures and in accordance with five key pillars.
They are revenue-based fiscal consolidation with social safety nets, fiscal institutional reforms, and cost recovery-based energy pricing to ensure the state’s ability to support all its essential expenditures, public debt sustainability including through debt restructuring.
A multi-prompt strategy restore price stability and rebuild reserves under greater exchange rate flexibility in order to alleviate the burden of inflation, particularly on the poor, to foster an environment of investment and growth and to assure Sri Lanka’s ability to purchase essential goods from abroad
Policies include safeguarding the financial sector’s stability to ensure that the financial sector can play its key role in supporting economic growth and structural reforms to address corruption, and vulnerabilities and enhance growth
Highlighting the importance of anticorruption and governance reforms, Mr. Breuer said it is indispensable to ensure that people receive the benefits of the hard-won gains from reforms.
Mr. Breuer further stressed that Sri Lanka must present a debt restructuring strategy by the end of April 2023 to reach the IMF targets to achieve debt sustainability. (Bandula)