Transcript of Press Briefing on the Completion of the Third Review for the IMF Extended Fund Facility for Sri Lanka
IMF News, March 5, 2025
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- Published: March 5, 2025
Executive summary
- IMF Executive Board approved the third review under the 48-month Extended Fund Facility Arrangement with Sri Lanka on Friday February 28, providing the country with immediate access to about US$334 million to support its economic policies and reforms.
- Total IMF financial support dispersed so far is about $1.3 billion.
- The Executive Board's approval recognizes strong program performance: "All quantitative targets for end December 2024 were met, except for the indicative target on social spending." Most structural benchmarks "do by end January 2025 were either met or implemented with delay."
- Key policy priorities emphasized: sustain revenue mobilization, protect the poor and vulnerable, restore cost recovery electricity pricing, safeguard central bank independence, rebuild external buffers, and address prolonged structural challenges including governance reforms.
Macroeconomic developments and outlook
- Findings:
- "Economic growth averaged 4.3% since growth resumed in the third quarter of 2023."
- "The recovery is expected to continue in two thousand 2025 now."
- "Inflation remains slow. Revenue collection is improving and reserves continue to accumulate."
- The economy "is still vulnerable" and "there is no room for policy errors."
- Policy implications:
- Sustain reform momentum to ensure macroeconomic stability and debt sustainability and to promote long term inclusive growth.
Fiscal policy and revenue mobilization
- Findings:
- "Sustained revenue mobilization is crucial to restoring fiscal sustainability. And ensuring that the government can continue to provide essential services."
- Tax as a share of GDP increased "by 5 percentage points" to "somewhere 12.4% or so last year" (textual phrasing preserved).
- Specific measures and discussions:
- The imputed rental income tax proposed by the previous administration will not proceed; the new authorities proposed a different package aligned with their mandate and staff assessed "this package is sufficient to meet the revenue targets under the program." If measures prove insufficient, "additional revenue measures would be needed."
- Emphasis on "boosting tax compliance and refraining from tax exemptions" to maintain support for reforms.
- The budget must be consistent with program parameters; staff noted further details in the staff report (table on page 12 referenced in the briefing).
Social protection and poverty
- Findings:
- Protecting the poor and vulnerable is "an important component of the EFF program."
- Program includes "a floor on social spending in the program that we assess on a quarterly basis"—the government must spend a minimum amount to protect the poor and vulnerable.
- Recent adjustments (ASWASUMA changes, payments increases for elderly, disabled, and chronic kidney patients) are "aligned with the authorities commitments to continue strengthening social safety Nets."
- Priorities:
- Continue strengthening coverage, adequacy, and targeting of social spending.
- Ensure ASWASUMA coverage remains "above the poverty rates that are currently observed."
Energy pricing, SOEs, and public finances
- Findings:
- Restoring cost recovery electricity pricing "without delay is needed to contain fiscal risks from state owned enterprises."
- A January tariff reduction was identified as a concern because, "on a forward-looking basis, that tariff cut meant that Ceb wouldn't be able to avoid any losses," risking accumulation of contingent liabilities for the government.
- SOE reforms:
- SOEs can be managed prudently while remaining state owned or divested partially/completely; most crucial is to "avoid the accumulation of losses or debts that then would eventually need to be repaid by the taxpayers."
- Program commitments include cost-reflective pricing, publishing audited financial statements of largest SOEs in a timely manner, improved governance and efficient operation to deliver value to consumers.
- IMF staff said they are "reassured by the authorities commitment" to prevent SOEs from becoming a budgetary burden.
- Public sector recruitment:
- IMF's stance: "that's really not for us to judge"—the government must identify resources needed and operate "within the envelope of the program."
Monetary policy, reserves, and external sector
- Findings:
- Monetary policy should "prioritize maintaining price. Stability supported by sustained commitment to prohibit monetary financing and. To safeguard central bank independence."
- "Continued exchange rate, flexibility and gradually phasing out the balance of payments measures remain critical to rebuild external buffers and facilitate rebalancing."
- Reserves "have reached about half of the program objective already."
- Operations and tools:
- For sterilizing inflows or reserve management, the Central Bank can "engage in repo operations or also issue their own securities."
- The Central Bank has been effective in meeting the inflation target and in some instances "are a little bit undershooting."
- On central bank holdings of on-market bonds: because "there's no market for this restructured bonds, we do not envision the unwinding of this stock over the next 12 months" (see program targets referenced in table one on page 95 of the published report for net credit to the government).
Financial sector and insolvency frameworks
- Findings and priorities:
- Resolve non performing loans, strengthen governance and oversight of state owned banks, and improve insolvency and resolution frameworks to revive credit growth and support the economic recovery.
- Strengthened governance reforms are required to unlock long term potential.
Program implementation, debt restructuring, and next steps
- Findings:
- "The recent successful completion of the bond exchange is a major milestone towards restoring debt sustainability."
- Timely finalization of bilateral agreements with creditors in the official creditor committee, and with remaining creditors, is "a priority now."
- Implementation notes:
- All quantitative targets for end December 2024 were met except the indicative social spending target; most structural benchmarks "do by end January 2025 were either met or implemented with delay."
- Next mission and reviews:
- IMF missions will continue engagement; Mr. Breuer announced he will transition as Senior Mission Chief as part of standard staff rotation.
- A mission is expected to visit Colombo "in the coming weeks or months or so"—exact dates to be announced.
Key statistics and exact figures (preserved from transcript)
- 48-month Extended Fund Facility Arrangement
- immediate access to about US$334 million
- total IMF financial support dispersed so far to about $1.3 billion
- "All quantitative targets for end December 2024 were met, except for the indicative target on social spending."
- "Most structural benchmarks do by end January 2025 were either met or implemented with delay."
- Economic growth averaged 4.3% since growth resumed in the third quarter of 2023.
- "The recovery is expected to continue in two thousand 2025 now."
- Tax as a share of GDP increased "by 5 percentage points" to "somewhere 12.4% or so last year."
- Reserves have reached "about half of the program objective already."
- Central bank actions on restructured on-market bonds: no unwinding envisaged "over the next 12 months" (see table one on page 95 of the published report).
Transcript of Press Briefing on the Completion of the Third Review for the IMF Extended Fund Facility for Sri Lanka, March 5, 2025 — IMF Communications Department