The IMF Executive Board completed the third review of Sri Lanka’s Extended Fund Facility arrangement on Wednesday (6), enabling the disbursement of US$ 251.4 million to the country.
In a statement yesterday, the IMF said the Executive Board completed the third review of Sri Lanka’s economic performance under the programme supported by a three-year extended arrangement under the Extended Fund Facility (EFF) arrangement. “Completion of the review enables the disbursement of the equivalent of approximately US$ 251.4 million, bringing the total disbursements under the arrangement to the equivalent of approx. US$ 759.9 million,” it said.
Sri Lanka’s three-year extended arrangement was approved on June 3, 2016, in the amount of about US$1.45 billion or 185 per cent of quota in the IMF at the time of approval of the arrangement.
The statement said Sri Lanka government’s reform programme, supported by the IMF, aims to reduce the fiscal deficit, rebuild foreign exchange reserves and introduce a simpler, more equitable tax system to restore macroeconomic stability and promote inclusive growth.
Following the IMF Executive Board’s discussion of the review, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director said Sri Lanka’s performance under the Fund-supported programme has remained broadly on track since the second review.
“Macroeconomic and financial conditions have been stable, despite a series of weather-related supply shocks. The authorities remain committed to the economic reforms under the programme and have undertaken measures to improve government revenue and accumulate international reserves. Going forward, it is important to build on the progress made and accelerate reforms to further reduce fiscal and external vulnerabilities,” he said.
“Fiscal performance has been satisfactory and all targets until September were met. The new Inland Revenue (IR) Act will make the tax system more efficient and equitable, and generate resources for social and development programs. Nevertheless, Sri Lanka’s high debt burden, large gross financing needs, and weak financial performance of state-owned enterprises increases the importance of further fiscal consolidation. Timely progress in structural reforms, including tax administration and energy pricing, will support fiscal consolidation,” he said.
He also said the inflation and credit growth remain on the high side and maintaining a tightening bias for monetary policy is recommended until clear signs emerge that inflation pressures and credit expansion have subsided.
“Macroprudential tools should also be used to help rein in credit growth and head off systemic risks. While financial soundness indicators remain stable, financial sector supervision and the AML/CFT regime should be further strengthened,” he said.
Mr. Furusawa said along with efforts to deepen the foreign exchange market, it is important to further accumulate reserves and enhance exchange rate flexibility to reduce Sri Lanka’s external vulnerability. “Structural reforms are also needed to enhance competitiveness and promote inclusive growth, including measures to improve trade and investment regimes,” he said.