IMF Staff Concludes Visit to Sri Lanka
IMF News, September 27, 2023
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Bibliographic details
- Published: September 27, 2023
Mission purpose and timeline
- IMF mission led by Mr. Peter Breuer and Ms. Katsiaryna Svirydzenka visited Colombo from September 14 to 27, 2023 to discuss economic and financial policies to support the approval of the First Review of the program under the Extended Fund Facility (EFF) arrangement.
- End-of-mission press release issued September 27, 2023; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Major findings on economic performance
- The people of Sri Lanka have shown "remarkable resilience" and the authorities have made "commendable progress" in implementing difficult but much-needed reforms.
- The economy is showing tentative signs of stabilization but "full economic recovery is not yet assured."
- Key statistics cited:
- Inflation: down from a peak of 70 percent in September 2022 to below 2 percent in September 2023.
- Gross international reserves: increased by $1.5 billion during March-June this year.
- Real GDP: in the second quarter contracting by 3.1 percent on a year-on-year basis.
- Revenue mobilization: gains are expected to fall short of initial projections by nearly 15 percent by year end.
- Reserve accumulation has slowed in recent months.
- High-frequency economic indicators continue to provide mixed signals; shortages of essentials have eased.
Fiscal stance, revenue, and social protection
- Authorities have met the program’s primary balance targets and remain committed to restoring debt sustainability.
- Risks:
- If revenue mobilization falls short and is not recouped, the onus of fiscal adjustment would fall on public expenditure.
- Cuts to public expenditure could weaken the government’s ability to provide essential public services and undermine the path to debt sustainability.
- Policy guidance to increase revenues and signal better governance:
- Strengthen tax administration.
- Remove tax exemptions.
- Actively eliminate tax evasion.
- Social safety nets:
- A new welfare benefit payment scheme was enacted with new eligibility criteria to improve targeting, adequacy, and coverage.
Monetary policy, external buffers, and energy pricing
- Rebuilding external buffers by strong reserves accumulation remains important under continued uncertainty.
- Central Bank of Sri Lanka success in controlling inflation noted; refraining from monetary financing will help keep inflation in check.
- Maintaining cost recovery of electricity pricing identified as an ongoing challenge.
Financial sector and governance reforms
- Steps taken to ensure financial stability:
- Conducting bank diagnostics.
- Developing a roadmap for addressing banking system capital and liquidity shortfalls.
- Improving the bank resolution framework.
- Legislative progress:
- Key legislations passed in Parliament, including the new Central Bank Act and the Anti-Corruption Act, could improve governance if implemented effectively.
- IMF Governance Diagnostic report referenced as informing future reform measures to strengthen governance when published.
Debt restructuring and financing assurances
- Authorities have made headway on regaining debt sustainability through execution of domestic debt restructuring and advancing discussions with external creditors.
- As Sri Lanka is restructuring its public debt which is in arrears, Executive Board approval of the first program review requires completion of financing assurances reviews.
- Financing assurances reviews will focus on whether adequate progress has been made with debt restructuring to give confidence that it will be concluded in a timely manner and in line with the program’s debt targets.
Engagement, stakeholders, and next steps
- IMF team met with President and Finance Minister Ranil Wickremesinghe; Central Bank Governor Dr. P. Nandalal Weerasinghe; State Minister Mr. Shehan Semasinghe; Chief of Staff to the President Mr. Sagala Ratnayaka; Secretary to the Treasury Mr. K M Mahinda Siriwardana; other senior government and CBSL officials; Parliamentarians; private sector representatives; civil society organizations; and development partners.
- Discussions will continue toward reaching a staff-level agreement in the near term with the goal of maintaining reform momentum and supporting Sri Lanka’s emergence from its deep economic crisis.
- IMF commitment reiterated: "We reaffirm our commitment to support Sri Lanka at this difficult time."
IMF Staff statement, "IMF Staff Concludes Visit to Sri Lanka", September 27, 2023.
Content in this bundle
- Press Release-English
- Press Release-English