## IMF Staff Concludes Visit to Sri Lanka to Discuss Progress of Economic Program

_IMF News, September 23, 2016_

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**Canonical URL:** [IMF Staff Concludes Visit to Sri Lanka to Discuss Progress of Economic Program](https://www.imf.org/en/news/articles/2016/09/23/pr16422)

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## Bibliographic details
- Published: September 23, 2016

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### Mission timeline and purpose
- A staff team from the International Monetary Fund (IMF) led by Jaewoo Lee visited Colombo during September 13-23, 2016.
- Purpose: to hold discussions on the first review of the Sri Lankan authorities’ economic program supported by a three-year Extended Fund Facility (EFF).
- Statement reflects preliminary findings of the mission; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

### Macroeconomic assessment (first half of 2016)
- Overall performance reflected:
  - improving balance of payments,
  - reduced growth mainly related to recent floods,
  - slightly higher inflation.
- The mission welcomes:
  - effective tightening of fiscal and monetary policies that contributed to improving market confidence and easing pressures on external balances.
- All quantitative targets through end-June were met.

### Fiscal and tax policy findings and recommendations
- Forward-looking aspects of the program review, mainly related to the implementation of the tax reform package, need to be addressed without further delay.
- Specific recommendations:
  - Expedite the legislative process of implementing the value added tax (VAT) amendments needed to support revenue targets for 2016 and 2017.
  - Ensure the 2017 budget is underpinned by a well-crafted and high-quality tax policy strategy to raise Sri Lanka’s low tax revenue-to-GDP ratio.
  - Commence the legislative process for the new Inland Revenue Act to:
    - rebalance the tax system toward a more predictable, efficient and equitable structure,
    - generate needed resources in support of the country’s social and development objectives.

### Monetary policy and external sector recommendations
- The mission welcomes the Central Bank of Sri Lanka’s (CBSL) move to preemptively raise policy rates to maintain inflation within its target band.
- Recommendations for the CBSL:
  - Remain vigilant in monitoring inflation pressures and stand ready to tighten further should inflation or credit growth continue to rise.
  - Continue efforts to rebuild international reserves in light of easing external pressures.
  - Maintain exchange rate flexibility to further develop the foreign exchange market.
  - Consider plans for a transition to flexible inflation targeting as the monetary policy framework, possibly supported by IMF technical assistance.

### Structural reforms and medium-term growth policies
- Encourage concerted efforts to implement structural reforms in:
  - public financial management,
  - state owned enterprises,
  building on substantial technical assistance received over the years.
- Policy priorities to achieve medium-term macroeconomic objectives:
  - Renewed effort toward greater integration into regional and global supply chains.
  - Achieve higher levels of foreign direct investment (FDI).
  - Enhance prospects for private sector investment.
  - Bolster competitiveness to boost trade and private sector development and support growth potential.

### Meetings and engagements
- The mission met with:
  - His Excellency President Sirisena,
  - Prime Minister Wickremesinghe,
  - Finance Minister Karunanayake,
  - Governor of the Central Bank of Sri Lanka Coomaraswamy,
  - parliamentarians, other public officials, and representatives of the business community, civil society and international partners.
- Discussions on reaching a staff level agreement on completion of the first review will continue in October in Washington D.C. during the Annual Meetings of the IMF and World Bank.

*IMF Communications Department — Press Release No. 16/422, September 23, 2016*

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## References

- [Sri Lanka and the IMF](http://www.imf.org/external/country/LKA/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [a three-year Extended Fund Facility (EFF)](http://www.imf.org/external/np/sec/pr/2016/pr16262.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/09/23/pr16422_