On June 1, 2018, the Executive Board of the International Monetary Fund
(IMF) completed the fourth review of Sri Lanka’s economic performance under
the program supported by a three-year Extended Arrangement under the
Extended Fund Facility (EFF) arrangement.
[1]
Completion of this review enables the disbursement of the equivalent of SDR
177.774 million (about US$ 252 million), bringing total disbursements under
the arrangement to the equivalent of SDR 715.23 million (about US$ 1,014
million).
Sri Lanka’s three-year extended arrangement was approved on June 3, 2016,
in the amount of about SDR 1.1 billion (about US$1.5 billion, or 185
percent of quota in the IMF at that time of approval of the arrangement).
(See
Press Release No. 16/262).
The Executive Board also concluded the 2018 Article IV consultation with
Sri Lanka today. A separate press release will be issued shortly.
Following the Executive Board’s discussion of the review, Mr. Mitsuhiro
Furusawa, Acting Chair and Deputy Managing Director, said:
“Sri Lanka has made important progress under its Fund-supported program.
The authorities’ efforts to improve the policy mix through fiscal
consolidation, prudent monetary policy, and landmark structural reforms are
supporting the economic recovery, despite recent shocks. Sustaining the
reform momentum is critical to strengthen the country’s resilience to
shocks, given the still sizable public debt and low external buffers, and
to set the foundation for strong and inclusive growth.
“Further progress with revenue-based fiscal consolidation, supported by the
new Inland Revenue Act, is needed to help safeguard important social and
infrastructure spending, including in response to natural disasters. Going
forward, a robust fiscal rule and medium-term debt management strategy will
help place debt firmly on downward path.
“The recent approval of an automatic fuel pricing formula is a major
achievement towards reducing fiscal risks from state-owned enterprises
(SOEs). In this regard, it is essential for the authorities to implement an
automatic pricing formula for electricity and a restructuring plan for Sri
Lankan Airlines, as well as further strengthening SOE governance and
transparency. The impact of the reforms on the vulnerable can be mitigated
by ongoing efforts to strengthen social safety nets.
“The Central Bank of Sri Lanka should continue to manage monetary policy
prudently, in the face of price shocks and market volatility. Efforts to
build up international reserves should be sustained, with exchange rate
flexibility as the first line of defense in response to volatile global
capital flows. Upgrading the central bank law will be instrumental for the
new inflation targeting framework. While financial soundness indicators
remain stable, continued credit growth in the real estate sector warrants
close monitoring.
“The authorities should step up implementation of structural reforms, with
a focus on fostering gradual trade liberalization and the investment
climate, developing a natural disaster risk financing framework, and
promoting gender equality in the labor market together with well-targeted
social safety nets.”
[1]
The EFF was established to provide support of comprehensive
programs that include policies of the scope and character required
to correct structural imbalances over an extended period. For more
details see
http://www.imf.org/en/about/factsheets/sheets/2016/08/01/20/56/extended-fund-facility
