The IMF yesterday said that the recent Parliamentary approval of two key pieces of legislation-the Public Financial Management Act and the Public Debt Management Act will improve fiscal discipline and prudent debt management, bolstering transparency and accountability.
Developing a holistic debt management strategy and establishing a well-structured and integrated Public Debt Management Office will help lower the government’s financing risks, the IMF said.
The IMF delegation headed by Senior Mission Chief Peter Breuer in a statement following their visit to Sri Lanka from July 25 to August 2, 2024 said that recovery continues with real GDP posting three consecutive quarters of expansion, and growth accelerating to 5.3 percent year-on-year in the first quarter of 2024.
“The economic reform programme implemented by the Sri Lankan authorities is yielding commendable outcomes”.
Issuing a statement at the conclusion of their visit to Sri Lanka, the delegation said that Inflation remains contained below the Central Bank of Sri Lanka’s (CBSL) 5 percent target and domestic borrowing rates have declined.
Their visit is aimed at discussing recent macroeconomic developments and progress in implementing economic and financial policies under the authorities’ economic reform programme supported by the IMF’s Extended Fund Facility (EFF) arrangement.
“Fiscal revenue collections increased during the same period. Going forward, these improvements need to translate into better living conditions for all of Sri Lanka’s people,” the statement said.
“With Sri Lanka’s knife-edged recovery at a critical juncture, sustaining the reform momentum and ensuring timely implementation of all program commitments are critical to cement the hard-won economic progress to date and put the economy on a firm footing”.
However, the delegation insisted that maintaining macroeconomic stability and restoring debt sustainability require further efforts to raise fiscal revenues.
“The 2025 Budget needs to be underpinned by appropriate revenue measures and continued spending restraint so as to reach the medium-term primary balance objective of 2.3 percent of GDP- a key requirement for restoring Sri Lanka’s debt sustainability. The planned relaxation of import restrictions on motor vehicles will support revenue mobilization in 2025”, the statement said.
The delegation is of the view that Tax administration reforms could further improve compliance, including by establishing a properly functioning VAT refund system for exporters by April 2025. “Any proposed measure eroding the fiscal position needs to be offset by compensating measures of high quality. Avoiding new tax exemptions will not only reduce
corruption risks and fiscal revenue leakages, but also ensure a more predictable and transparent tax system.Continuing to maintain energy prices at cost-recovery levels is critical to avoid potential fiscal costs. Protecting the poor and the vulnerable through improved targeting and better coverage of cash transfers remains critical. Policy slippages could jeopardize the recovery,” the statement said.
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