Sri Lanka: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, Extension of the Arrangement and Rephasing of Purchases-Press Release; Staff Report and Statement by the Executive Director for Sri Lanka

IMF Staff Country Reports, May 16, 2019

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Sri Lanka: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, Extension of the Arrangement and Rephasing of Purchases-Press Release; Staff Report and Statement by the Executive Director for Sri Lanka

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Bibliographic details

• Published: May 16, 2019
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781498315159.002

Summary and context

• Publication date: May 16, 2019
• This paper covers the Fifth Review under the Extended Arrangement under the Extended Fund Facility, a Request for Waivers of Nonobservance of Performance Criteria, extension of the arrangement, and rephasing of purchases.
• The Central Bank of Sri Lanka maintained a tight monetary policy stance, intervened in the foreign exchange market, and allowed for greater exchange rate flexibility in response to rising pressures.
• The Sri Lankan economy is described as vulnerable to shocks because of high public debt, large refinancing needs, and low external buffers.
• Authorities are committed to strengthening resilience through a policy mix emphasizing prudent monetary policy, greater exchange rate flexibility, and revenue-based fiscal consolidation.
• Continued implementation of structural reforms is deemed essential to support strong and inclusive growth.

Key findings and risks

• Vulnerabilities:
  • High public debt
  • Large refinancing needs
  • Low external buffers
  • Elevated domestic uncertainty
• Policy stance observed:
  • Tight monetary policy by the Central Bank of Sri Lanka
  • Foreign exchange market intervention
  • Greater exchange rate flexibility permitted
• Policy commitment:
  • Strengthen resilience via a strong policy mix
  • Emphasis on revenue-based fiscal consolidation

Policy recommendations and priorities

• Fiscal and monetary policies:
  • Maintain prudent monetary policy
  • Allow for exchange rate flexibility as needed
  • Pursue revenue-based fiscal consolidation
• Structural reforms and other policy priorities:
  • Liberalize trade
  • Improve the business environment and promote investment
  • Strengthen governance
  • Encourage female and youth labor force participation
  • Enhance social protection
  • Improve crisis preparedness for natural disasters

Subject areas and keywords

• Subject: Banking, Central banks, Credit, Financial institutions, International reserves, Loans, Money, Public debt, Revenue administration
• Keywords: Asia and Pacific, CR, Credit, crisis-preparedness toolkit, debt management strategy, debt reduction effort, discussion of the review, Global, IMF staff estimate, International reserves, ISCR, Loans, SDR, SOE governance, Sri Lankan authorities

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