IMF Executive Board Completes the Sixth Review of Sri Lanka’s Extended Arrangement under the Extended Fund Facility

IMF News, November 1, 2019

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Canonical URL: IMF Executive Board Completes the Sixth Review of Sri Lanka’s Extended Arrangement under the Extended Fund Facility

The Executive Board completed the Sixth Review of Sri Lanka’s economic performance under the program supported by an extended arrangement under the Extended Fund Facility (EFF) on November 1, 2019.
A waiver of non‑observance was granted for the end‑June 2019 performance criterion on the primary balance.
The completion of the Sixth review enabled the disbursement of SDR 118.5 million (about US$164 million).
Total disbursements under the arrangement following this review amounted to SDR 952.23 million (about US$1.31 billion).

Sri Lanka’s extended arrangement was approved on June 3, 2016, in the amount of about SDR 1.1 billion (US$1.5 billion, or 185 percent of quota in the IMF at that time of approval of the arrangement).
On May 13, 2019, the Executive Board approved an extension of the arrangement by one additional year, until June 2, 2020, with rephasing of remaining disbursements.

Growth is projected to strengthen to 3.5 percent in 2020, from 2.7 percent in 2019, as tourist arrivals and related activities gradually recover following the Easter Sunday terrorist attacks.
Important downside risks remain amid heightened external and domestic uncertainty.

Sustaining fiscal policy discipline is emphasized as critical to strengthen resilience and support growth.
Mobilizing revenue will be central to place public debt on a downward path while preserving space for social and investment spending.
The new fiscal rule framework and the establishment of an independent public debt management agency over the medium term are expected to help anchor public debt sustainability.
Advancing State-Owned Enterprise (SOE) reforms in the electricity sector is highlighted as critical to reduce fiscal risks.

The Central Bank of Sri Lanka should maintain a data dependent monetary policy.
The new Central Bank Act is described as a milestone reform towards the adoption of flexible inflation targeting.
Efforts to build reserves should be sustained to protect the economy against shocks, allowing for exchange rate flexibility in the event of market pressures.

Sri Lanka has made important progress in strengthening the AML/CFT regime.
Recommended actions include harmonizing regulation and supervision of financial institutions, strengthening the macroprudential policy framework, and upgrading the contingency framework to safeguard financial stability.

Further progress in the structural reform agenda is essential to bolster competitiveness and achieve stronger and inclusive growth.
Policy focus areas listed:
- Liberalizing trade by gradually removing para tariffs while addressing their revenue impact.
- Strengthening the governance and anti corruption framework.
- Promoting women’s economic empowerment.
- Building climate resilience.
- Enhancing social protection.

Press Release No. 19/390, November 1, 2019.