PARTICIPANTS:
Moderator:
HUONG LAN “PINKY” VU
Communications Officer
Speakers:
PETER BREUER
Senior Mission Chief for Sri Lanka
KATSIARYNA SVIRYDZENKA
Deputy Mission Chief for Sri Lanka
SARWAT JAHAN
Resident Representative in Sri Lanka
MS. VU: Hello. I guess we can get started now. Good morning to those in
Asia and good afternoon, good evening to those who are joining from other
parts of the world. Welcome to the IMF's Press Briefing on the First
Review mission under the Extended Facility Fund Arrangement for Sri Lanka.
My name is Huong Lan (Pinky) Vu, Communications Officer at the IMF. And
today I'm delighted to be joined by three speakers from the Asia and
Pacific Department at the IMF. Peter Breuer, Senior Mission Chief for Sri
Lanka, Katsiaryna Svirydzenka, Deputy Mission Chief and Sarwat Jahan,
Resident Representative in Colombo.
By now you should have seen the press release which was posted on imf.org a
couple of hours ago. And in this briefing, we'll have an opportunity to
delve into some of the issues discussed in the press release. To commence
the briefing, I would like to invite Peter to give some opening remarks and
then we'll take your questions. And please kindly keep your microphones
muted throughout the briefing, unless when you are speaking. So, with
that, Peter, the floor is yours.
MR. BREUER: Thank you very much, Pinky. And hello and good morning.
Good evening from Washington. Thank you for joining us for this Press
Briefing here today. It is good to see many of you here virtually.
Following constructive discussions in Colombo in September, in Marrakech,
in October, during the annual meetings of the IMF, and virtually since
then, the IMF has reached staff level agreement with the Sri Lankan
authorities on the first review under their economic reform program
supported by the IMF's Extended Fund Facility Arrangement. The agreement is
subject to approval by IMF management and its Executive Board in the period
ahead, and it is conditional on two things.
First, the implementation by the authorities of all prior actions, and
second, completion of the so called Financing Assurances Reviews,
confirming that sovereign debt is being restructured in a timely manner and
in line with the program's debt targets. Upon approval by the IMF Board,
Sri Lanka will have access to about $330 million, bringing the total IMF
financial support dispersed to about $660 million out of roughly 3 billion
that would be available over the four-year life of the program.
The ambitious reform agenda is starting to bear fruit, with rapid
disinflation and fiscal revenue rising from very low levels. Program
performance at end June was satisfactory. All quantitative performance
criteria were met except on expenditure arrears, and all indicative targets
were also met except on tax revenues. Most structural benchmarks were
either met or met with delay. Notably, the authorities published on time
the Governance Diagnostic Report, making Sri Lanka the first country in Asia
to do so.
The economy is showing tentative signs of stabilization, but growth
momentum remains subdued and economic recovery is not yet assured. Sri
Lanka's external position weakened as a result of several factors,
including slow progress on debt restructuring and reserve accumulation
slowed in recent months. Agreeing on debt treatments consistent with
restoring debt sustainability quickly will be key to resolving uncertainty
that is constraining Sri Lankan businesses and external financing.
Sustaining the reform momentum is needed to achieve stable and inclusive
economic recovery. We welcome the Authority's commitment to increase
revenues, improve governance and tax administration, and actively eliminate
evasion.
Cost recovery in energy pricing helps mitigate fiscal risks from
state-owned enterprises. Further strengthening the social safety net is
critical to protect the poor and the vulnerable. While inflation
decelerated, continued monitoring is needed to anchor expectations.
Rebuilding external buffers through strong reserves accumulation remains an
important objective of the program. We also welcome the authorities’
commitment to implement key recommendations of the Governance Diagnostic
Report. Concrete steps towards addressing corruption risks and
strengthening accountability will build confidence and make growth more
robust and inclusive.
Following the domestic debt operation, the critical next step is to secure
an agreement with official creditors on a debt treatment consistent with
program parameters and debt targets. We took note of a tentative agreement
between Sri Lanka and the Export Import Bank of China and will analyze the
details when we receive them. We urge all official creditors to move
forward and agree on an appropriate debt treatment in line with the
financing assurances they provided.
We also understand negotiations between commercial creditors and Sri
Lankans are ongoing and emphasize the need to restore debt sustainability
in a robust manner. Delays risk worsening the economic outlook for Sri
Lanka, widening its financial gaps, hindering its return to sustainable
growth, and thereby reducing its capacity to pay.
Let me conclude by thanking the authorities for the excellent collaboration
during the mission. Thank you. Back to you, Pinky.
MS. VU: Thank you, Peter. So now we'll open the floor for questions. If
you would like to ask a question, please raise your virtual hand and then
I'll call on you. And yeah, please be reminded to keep your microphone
muted all the way unless you are speaking. And when you are speaking,
please turn on your camera, introduce yourself and your news organization.
With that, I would like to open the floor for questions. Please raise your
hand if you would like to ask a question. Yeah, Shihar, please. Shihar,
your audio is breaking up.
QUESTIONER: Yeah, can you hear me?
MS. VU: Yes, we can hear you now.
QUESTIONER: Yeah. The IMF has been strongly recommending some
anti-corruption measures from the day one. I just want to check the
progress because what we hear from the government official is IMF was not
happy about the measures so far taken on the anti-corruption part. Could
you comment on that, please? Thanks.
MS. VU: Thank you. I think we'll take a few more questions and then the
team will address them altogether. Do we have more questions from the room?
Asantha, please.
QUESTIONER: Hello. Yes, could you give us some idea about the prior
actions that we had to do and also whether the budget is a prior action and
how the recent rejection or like the reply sent by Sri Lanka to the
bondholders, whether that will affect the review.
MR. VU: Okay, I think we'll take one more question. Hanada from Nikkei.
Please.
QUESTIONER: Good morning. I just would like to ask about the impact of
the Chinese authority. Just a few days ago Sri Lanka and Chinese Export
Import Bank say that they reach to some key principle of the agreement of
the debt restructuring process. Is this latest IMF decision was impacted by
this kind of the Chinese action?
MS. VU: Thank you. Yeah, I would like to invite Peter and the team to
address the questions.
MR. BREUER: Thank you so much for your interest. So, a number of
different questions. Well maybe let's start with the question on the
prior actiosn because it gives me also an opportunity to clarify that the
details of what was agreed will be made transparent when our staff report
is published after the IMF Executive Board had the opportunity to consider
it.
But nevertheless, as you would expect, the conditionality focuses on
achieving the objectives of the program including raising revenues and
mitigating fiscal risks and ensuring strong governance reforms and
safeguarding financial stability. So really there are no surprises there.
And just like approximately 12-months ago we are of course looking for a
strong budget that can achieve that with of course the objective being that
the gap between expenditures and revenues needs to be narrowed so that Sri
Lanka can once again find creditors who are willing to finance the
remaining gap.
On the anticorruption measures, well, I think it should be noted as I said
in the opening remarks, the publication of the Governance Diagnostic on
time, that was a structural benchmark under the program that has been met.
It is an important moment. It is the first governance diagnostic to be
published in Asia and it contains a whole host of recommendations. So,
implementing those recommendations of course will be important going
forward and we have discussed that with the authorities, and they will be
working on an action plan on how to implement some of these key
recommendations including as part of the program.
The third question on -- was the news from China that there's an agreement
between Sri Lanka and the China EXIM Bank. Did that have an impact on now
reaching staff level agreement? And the answer to that is no. The staff
level agreement is the outcome of having agreed between the IMF staff and
the Sri Lankan authorities on a set of strong measures that will help
achieve the objectives of the program in the various areas. Revenue-based
fiscal consolidation, strengthening the social supports to the poor and
vulnerable, financial stability, debt sustainability, all these objectives.
Reaching debt sustainability is a separate track. The authorities are
engaged with their creditors in finding debt treatments that would help
restore debt sustainability in line with the debt targets under the
program. And so that is the second leg of activity that needs to be
brought forward in order for us to be able to present the review to the IMF
Executive Board. Let me stop there. Thank you.
MS. VU: Thank you, Peter. We'll go to the second batch of questions now.
Indika and then Meera will be next. Indika, please.
QUESTIONER: Hi, can you hear me? Pinky?
MS. VU: Yes.
QUESTIONER: Yeah. Thank you. I have two questions. When is the staff
agreement is expected to be taken up by the IMF Executive Board for
consideration for approval? And the other one is, are there any new
pledges or commitment made by the Sri Lankan authority with regards to
revenue mobilization to -- yeah?
MS. VU: Thank you, Indika. And Meera, please.
QUESTIONER: Yeah, thank you. I have two questions. So, you observed that
the critical next step is to secure an agreement with the official
creditors. And you've taken note of this tentative agreement between Sri
Lanka and the EXIM Bank of China. And yesterday, the Chinese EXIM has also
assured President Wickremesinghe of support.
But could you please tell us what this means in terms of debt treatment?
Because on the one hand, you have the Paris Club led creditors committee
where India and Japan have been keen on creditor parity. And on the other
we see China and Sri Lanka bilaterally negotiating debt treatment, but we
don't know the specifics of the negotiations.
So, does the IMF have a role in ensuring creditor parity and transparency
in finalizing the debt treatment plan? And how are you really monitoring
these two aspects? That's my first question.
The second is you have commended a series of measures by the government,
including rapid disinflation. So, while inflation has reduced to some
extent, although it's over and above last year's inflation, the cost of
public utilities are steadily rising. Even today, we're expecting a hike
in electricity tariff. You also underscore social safety net, but within
Sri Lanka there's a lot of concern about who gets excluded in the current
policy. So, are you also thinking about who is really bearing the cost of
the IMF program within Sri Lanka? How are you addressing those concerns?
Thank you.
MS. VU: Thank you, Meera. I think we have enough questions for the second
batch. So, Peter, please.
MR. BREUER: Yes, thank you very much. So let me start by the early
questions and then maybe Sarwat can come in on the latter question. So,
with respect to when the Board, the IMF Board, can take up consideration of
the first review for Sri Lanka, really two things need to happen before we
can present the staff report to the Executive Board. The first is the
implementation by the authorities of the prior actions that have been
agreed in line with the objectives of the program. And then the second is
the completion of the so-called Financing Assurances reviews, which
includes confirming whether adequate progress has been made with debt
restructuring to give confidence that this restructuring will be concluded
in a timely manner and also in line with the program's debt targets.
And that actually also is a cue to answer the question on, sort of, what is
the IMF's role in debt restructuring? Our role is we want to be sure that
debt sustainability is being restored in Sri Lanka. This is essentially
defined through the debt targets that were set in the program when the
program commenced in March. So, these are targets with respect to the debt
stock and with respect to the debt service in domestic and in foreign
currency, and also with respect to the debt relief that's needed within the
program period. So, we will be monitoring whether the treatments that are
being agreed are compliant with those targets.
Now, Sri Lanka has committed to follow the principle of parity and
transparency and those are principles that are very important for creditors
to decide to participate in the restructuring. And so hence they are of
interest to the IMF on a secondary basis.
Well, there is a question on measures with respect to revenue mobilization,
maybe if Katya wants to tackle that one. And Sarwat, do you want to go
ahead on the last one with respect to social safety net? Sarwat?
QUESTIONER: Sure, Peter. On the social safety net, I would like to
highlight that a core pillar of the program is to protect the poor and the
vulnerable from the adverse impact of the crisis by raising the social
spending floor and also by improving the targeting of the beneficiaries.
With the aim of improving targeting, the authorities have developed a
social registry to ensure that cash transfers are given only to those that
deserve it by qualifying through the eligibility criteria.
Now, this social registry is meant to be dynamic. Therefore, anyone who
believes that they have been excluded or placed in the incorrect category
are encouraged to file grievances. And we understand that there have been
quite a bit of grievances that are filed. But it is through this procedure
that the authorities can take remedial measures to correct for any errors
that may have been made. And we have continuously engaged with
authorities and recommended strengthening of the social safety net by
improving targeting, adequacy, and coverage. So, we do encourage Sri
Lankans to engage with the authorities to let them know if they feel that
they have not been included in the registry. Katya, would you?
MS. SVIRYDZENKA: If Peter doesn't mind, there was also a question about
the electricity prices, so maybe I can take that because that also is
relevant to the question on the social safety net. And there we would like
to emphasize that sudden electricity recovery is crucially important to
eliminate financial losses in the electricity sector because at the end of
the day, that becomes a burden on the taxpayers, including on those who are
poor and vulnerable.
So, it's one of the key elements of the Fund supported program in Sri
Lanka. At the same time as Sarwat has highlighted, the impact of the
tariff hike on the poor should be mitigated by the strong social safety
net. And in addition to that, Sri Lanka should implement structural
reforms to make the electricity sector more efficient and improve the
governance of state-owned enterprises more generally. That should lower the
cost of electricity in the medium and long term. And that's something
that the authorities are working on.
Now, on the revenue measures, the authorities are making good progress in
response to revenue measures. As you have seen in the press release we put
out, we expect that the revenue mobilization will fall short of projected by
the end of the year by 15 percent. At the same time, the authorities are
working on compensating measures. And the next steps in the program will be
more in the tax administration domain to ensure there's no evasion, to
broaden the tax net to make sure that's more equitable and everyone pays
their share in terms of raising revenue so that the social safety net could
be adequately financed. I'll stop here.
MS. VU: Thank you. Now we go to Ronojoy, please.
QUESTIONER: Hello? Am I audible?
MS. VU: Yes, we can hear you.
QUESTIONER: All right, thank you. So, I'm Ronojoy from Bloomberg. I
wanted to understand, in terms of the Financing Assurances reviews, what
kind of developments and outcomes would constitute adequate progress for
the IMF?
MS. VU: Thank you. We'll take a few more questions before the team can
respond. Zulfick, please. Zulfick, are you there? You are on mute.
QUESTIONER: Hi, good morning. Can you hear me?
MS. VU: Yes, we can hear you.
QUESTIONER: Hi. My question is basically, we've seen the program that Sri
Lanka has got. There were concerns that there is a delay in implementing
the program or coming into certain agreements. However, there were also
comments being made, especially in Marrakech during the Annual Meetings,
that Sri Lanka's program was actually faster than the other programs,
compared to the other programs that were given to other countries. Could
you please elaborate on that process, on the delivery of the program given
to Sri Lanka, as well as on any other development surrounding the debt
restructuring process?
MS. VU: Right. Thank you. Asantha, we still can see your hand raised.
Is it an old hand or a new hand? Do you want to come in now? Do you
still want to come in?
QUESTIONER: I think it's the old hand. But my old question about whether
budget is a prior action, I didn't get a clear answer.
MS. VU: Okay, so your question is whether the budget is a prior action.
Thank you. Yeah. Peter, would you like to take it?
MR. BREUER: Thanks so much. On financing assurances review, so what
constitutes adequate progress? Essentially, we need to see a clear path to
restoring debt sustainability in Sri Lanka. The Financing Assurances
Review focus on whether adequate progress has been made with the debt
restructuring and whether we can have confidence that debt treatments, in
line with these debt targets that I described, will be concluded in a
timely manner. So, really, the objective here is to see Sri Lanka on a
clear path towards restoring debt sustainability.
With respect to the question on sort of that, Sri Lanka is sort of on a
faster track. So, what I recall that was being mentioned in Marrakech is
that there was a discussion about, generally, how quickly financing
assurances can be secured. And so, there was a comparison across
countries. You may recall that, in recent history, since, let's say,
COVID, quite a number of countries had to restructure their debt, like Chad
and Zambia, Sri Lanka, Ghana, roughly speaking, in that chronological
order, and the time it has taken to secure financing assurances for these
countries has become less and less.
So, I think it was in this context that Sri Lanka was mentioned, where you
remember the staff-level agreement for the program was reached on September
1st, 2022. And then, the program was considered by the Board, by the IMF
Executive Board, on March 20th, 2023. So, that was quicker than, for
example, in the case of Zambia and Chad, and then Ghana, which followed Sri
Lanka, was a tad quicker than that as well. So, it was basically
highlighting that the discussions at the Global Sovereign Debt Roundtable
have had an impact in the field when it comes to debt restructuring
processes, that these are moving along a little bit more quickly.
And then, there's the question with respect to the budget. So, as I said
at the outset, the exact prior actions and structural benchmarks will be
made clear to you and your audiences when the staff report is published,
after it has been considered by the IMF Executive Board. So, at the
moment, these details, I can't get into too much detail, but, as I
mentioned, there are no real surprises in the sense that all of them are
about achieving the program's objectives. And in particular, for example,
with respect to revenue, you will recall, as Katya mentioned, there was a
shortfall in 2023. So, clearly, the objective is to not let that happen
next year and to make up for that shortfall.
So, one of the objectives is to get to a revenue that exceeds 12% of GDP,
and accordingly, measures will have to be implemented to achieve that
objective. As you recall, Sri Lanka is a country with one of the lowest
taxes in the world, and that was a key contributor to the crisis,
especially when taxes were lowered even further in 2019, and then, shocks
hit, the country couldn't handle it. And so, that was a key contributor
to the crisis. The program is all about addressing the root causes of the
crisis. Raising revenue is a key element of it. Thank you.
MS. VU: Thank you, Peter. I think we have time for one more round of
questions, and I think there are few people who have follow-up questions.
So, Hanada, do you want to come in?
QUESTIONER: Okay, thank you. Let me confirm, just in case, regarding my
previous question. So, yesterday, Sri Lanka government also announced that
Chinese Finance Minister assured extensive commitment to Sri Lanka credit
optimization, and did it also have no impact on the staff level agreement?
I just quickly confirm about that point.
MS. VU: Okay. And, Dinesh, do you want to come in?
QUESTIONER: Will there be any sort of fast-tracking of the revenue
proposals, like the wealth tax. Is that going to -- or the inheritance
tax is going to come in the next budget.
MS. VU: Thank you. Ronojoy, we still can see your hand as well. Do you
have a follow-up question? Okay, maybe not. Right, Peter, so over to you,
please.
QUESTIONER: Sorry, sorry. I meant to unmute but I was late. I do have
one follow-up question.
MS. VU: Yes, please.
QUESTIONER: Can I go ahead?
MS. VU: Yeah, please go ahead.
QUESTIONER: So, there are some critics of the IMF's approach with Sri
Lanka who kind of argue that the Sri Lankan authorities have been acting in
very good faith, and the treatment or approach for IMF has still been maybe
more stringent than in the case of other countries, who maybe either are
serial defaulters or have had less of a good track record with IMF programs
in the past. Just curious if you have anything to share addressing that
kind of line of criticism.
MS. VU: Okay, thank you. I guess we don't have any more questions from
the room, so yeah. Over to you, Peter.
MR. BREUER: Yeah, thank you. Pinky, the middle question, fast-tracking
revenue proposals, I'm not sure I got that completely.
QUESTIONER: (Inaudible) mentioned an inheritance tax. Is that going to
come in the coming budget? Because you were just speaking about revenue
being short and trying to raise revenue.
MR. BREUER: The audio is very broken down, so I can't quite hear the
question. Some kind of a tax?
MS. JAHAN:Peter, if I may clarify, I think the
question was that there is property tax and wealth tax that we had during
the program negotiations, and it is in our staff report. The question is
whether, in this upcoming budget, those taxes will be advanced.
MR. BREUER: Okay, thank you. Thank you very much.
So, the first question on did -- sort of comments by Chinese officials or
the visit by the Sri Lankan President to China have an impact on
staff-level agreement? No. As I mentioned, staff-level agreement is the
result of discussions between the Sri Lankan authorities and IMF staff on a
set of measures and reforms that are needed in order to achieve the
program's objective. So, this is all about the domestic reform agenda of
the authorities, and pronouncements by other officials do not have a
bearing on that.
So, of course, when it comes to the debt negotiations, then moving towards
debt treatments that will restore debt sustainability will be important
steps with respect to completing these financing assurances reviews that I
mentioned.
On the question that (inaudible) kindly clarified for me, or for us,
property tax is something that is in the program, but not quite yet,
because it's recognized that this is something that takes a lot of time to
put into place, and it is, in fact, important for the Sri Lankan authorities
to make preparations for that. And, in fact, the IMF is also providing
some technical assistance in that regard. So, it's important to get started
with it. But it will take some time for that to become effective. And
it's envisaged that, in 2025, property tax would be a key source of
additional revenue in that year.
On the question with respect to even-handed treatment of Sri Lanka versus
other countries, let me assure you that the IMF is very sensitive to that
question, whether countries are being treated in an even-handed manner,
given the particular circumstances that they are in. And, of course, in Sri
Lanka, we follow that principle as well. Indeed, we have a department, a
Strategy, Policy and Review Department, that has one of its key missions to
ensure even-handed treatment of countries. And we follow that principle in
Sri Lanka very closely. Thank you.
MS. VU: Thank you, Peter. I think this brings us to the conclusion of our
press briefing today. The recording and transcript of this briefing will
be posted on imf.org. Please do check it out after this meeting. Thank you
very much for joining us, and have a good day. Bye-bye.
MR. BREUER: Thank you.