IMF says Sri Lanka’s economy stabilizing, releases US$162 million as part of extended fund facility

“Sri Lanka’s performance under the Fund-supported program has been broadly satisfactory despite challenging circumstances,” Deputy Managing Director, Tao Zhang, said in a statement.

“Macroeconomic and financial conditions have begun to stabilize, inflation has trended down, and the balance of payments has improved. Meanwhile, international reserves remain below comfortable levels,” Zhang said.
The completion of the review enables the disbursement of US$ 162.6 million, bringing total disbursements under the arrangement to the equivalent of US$ 325.1 million.

Sri Lanka’s three-year extended arrangement was approved on June 3, 2016 in the amount of about SDR 1.1 billion (US$1.45 billion), or 185 percent of quota in the IMF at that time.

The government’s reform program, 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, the IMF said.

It added that Sri Lanka’s 2017 budget proposal aims to strengthen government finances through revenue mobilization, while guarding against revenue shortfalls by aligning spending with revenue on a quarterly basis.

The new Inland Revenue Act scheduled for early next year should result in a more efficient, transparent, and broad-based tax system. Complementary structural reforms in tax administration, public financial management, and the governance and oversight of state-owned enterprises are critical for durable fiscal consolidation, the IMF said.

“While inflation has abated, credit growth remains strong. The central bank indicates its readiness to tighten the monetary policy stance further if inflationary pressures resurge or credit growth persists. The authorities intend to continue building up reserves through outright purchases while allowing for greater exchange rate flexibility.”