IMF calls on government to increase social spending
The International Monetary Fund (IMF) has reached a staff-level agreement on the third review under the nation’s Extended Fund Facility arrangement. IMF Sri Lanka Senior Mission Chief Peter Breuer urged the government to increase social spending in the upcoming budget.
“Completing the reform agenda to achieve more inclusive and sustainable growth will benefit all Sri Lankans,” Breuer stated. He commended the government for its ambitious reform program but stressed the importance of inclusivity in the nation’s economic recovery strategy.
“The government has an important responsibility to protect the poor and vulnerable at this difficult time. It is important to redouble effort to meet the program’s minimum spending target on social spending and to improve targeting adequacy and coverage of social safety nets, particularly Aswesuma,” said Breuer.
Breuer made these observations at the Central Bank on November 23. The agreement is subject to the presentation of a 2025 budget that encompasses the underpinnings of the current agreement.
Breuer stated, “Maintaining macroeconomic stability and restoring debt sustainability is key to securing Sri Lanka’s prosperity and requires persevering with responsible fiscal policy. Continued revenue mobilization efforts and spending restraint are needed to prepare the 2025 budget in line with program objectives.”
The IMF’s findings show that most quantitative performance criteria and indicative targets for the periods ending in June and September 2024 were met. Sri Lanka however consistently fell short of its targets on social spending. The new staff-level agreement, pending approval by the IMF’s executive board, mandates the submission of a 2025 budget that aligns with addressing these revised priorities.
The country’s economy exhibited growth of approximately 4% year-on-year across the last four quarters, with inflation contained to an average of 0.8% and core inflation at 3.8%. Alongside these positive indicators, the gross official reserves grew to $6.4 billion, benefitting from significant foreign exchange interventions by the central bank.
The IMF projects that with the successful implementation of these measures, Sri Lanka would gain access to an additional $330 million, totalling $1.3 billion in financial support under the current arrangement. Breuer emphasized the importance of this support, stating, “It will be important to ensure that the benefits from the economic growth are shared appropriately across the population.”
Breuer critiqued the monetary board noting that inflation has decelerated faster than forecast. Breuer called on the Monetary Authority to continue being a net purchaser of dollars in the open market. The IMF acknowledged the new government’s significant economic mandate to make economic spending more robust and inclusive. (TP)
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