## Transcript of Press Briefing on First Review Mission for IMF-Supported Program for Sri Lanka

_IMF News, September 27, 2023_

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## Bibliographic details
- Published: September 27, 2023

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### Overview and context
- IMF team in Colombo since September 14 to conduct the first review under the Extended Fund Facility (EFF) arrangement.
- Mission participants: PETER BREUER (Senior Mission Chief), KATSIARYNA SVIRYDZENKA (Deputy Mission Chief), SARWAT JAHAN (Resident Representative in Sri Lanka).
- Press briefing date: September 27, 2023.
- Recording and transcript will be posted on imf.org.

### Macroeconomic developments and key indicators
- Inflation: down from a peak of 70% to today 1.3%.
- Real GDP: contracting 3.1% in the second quarter this year, on a year on year basis.
- Gross international reserves: increased by $1.5 billion between March and June this year.
- Reserve accumulation has slowed in recent months.
- High frequency economic indicators: described as “still sending mixed signal.”

### Fiscal position and revenue mobilization
- Government expenditures: “of the order of 19 or so percent of GDP.”
- Government revenue: “in the order of 9% of GDP or so.”
- Program target: raise revenue equivalent to 12% of GDP in 2024.
- Current outlook: revenue mobilization gains improved relative to last year but “are expected to fall short of initial projections by nearly 15% by year end.”
- IMF emphasis: strengthen tax administration, remove tax exemptions, and actively eliminate tax evasion to reach revenue objectives.

### Monetary policy and financial stability
- Steps taken: monetary and fiscal policy adjustments to stabilize the economy.
- Financial sector measures: conducting bank diagnostics; developing a roadmap for addressing banking system capital and liquidity shortfalls; improving the bank resolution framework.
- Interest rates: reported as coming down (IMF notes reduced interest rates as part of benefits to households).

### Structural reforms and governance
- Key legislation passed in parliament: Central Bank Act and the Anti-Corruption Act.
- IMF Governance Diagnostic Report to inform future governance reforms when published.
- SOE reform objective: ensure SOEs are run on a commercial basis and do not accumulate additional financial liabilities for the government.
  - Policy actions cited: adjustments to fuel and electricity prices; cabinet-approved comprehensive strategy to address cross holdings of debt across SOEs.

### Social protection and equity considerations
- New Welfare Benefit Payment Scheme enacted with new eligibility criteria to improve targeting, adequacy, and coverage.
- IMF program places importance on social spending as a core pillar.
  - For 2023: discussed spending floor on four major cash transfers totaling Rs187,000,000,000 or equivalent to 0.6% of GDP.
  - IMF preference: see minimum social spending continue into the next year.
- IMF notes that inflation reduction and lower interest rates benefit the poor and vulnerable; program design described as progressive with exclusions for the poorest.

### Debt restructuring, creditor engagement, and financing assurances
- IMF requirement for program progression: clear path towards restoring debt sustainability and successful creditor engagement.
- Financing Assurances Review (FAR) applies to both official (bilateral) creditors and commercial creditors.
- Debt operations to meet program debt targets: targets relate to debt stock, gross financing needs, external debt service, and required debt relief within the program period.
- Domestic debt measures: government has executed domestic debt restructuring; discussions ongoing with external creditors including Paris Club, China, and private creditors.
- IMF assessment standard: “adequate progress in the negotiations with the creditors that would give us confidence that this process will be concluded in a timely manner and in line with the program's debt targets.”

### Program implementation, review process, and timing
- To complete the first review and consider disbursement of the second tranche, two conditions:
  - Agreement with authorities on policies needed to achieve program objectives (staff level agreement).
  - Adequate progress on debt restructuring/financing assurances to restore debt sustainability.
- No fixed timeline for second tranche: depends on meeting the policy and debt progress conditions and completion of IMF internal assessment/reporting and Executive Board consideration.
- Programs are dynamic: possible to make adjustments to achieve objectives if circumstances warrant.

### Communication and next steps
- IMF team to continue discussions with authorities with the goal of reaching a staff level agreement in the near term.
- IMF reiterated commitment to providing support to Sri Lanka during the ongoing crisis.

*Transcript of Press Briefing on First Review Mission for IMF-Supported Program for Sri Lanka, September 27, 2023, IMF Communications Department.*

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## References

- [Sri Lanka and the IMF](http://www.imf.org/external/country/LKA/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2023/09/27/tr092723-press-briefing-on-sri-lanka_