IMF confident Sri Lanka can be put on the path to prosperity
By Easwaran Rutnam
The International Monetary Fund (IMF) is confident Sri Lanka can be put on the path to prosperity.
Speaking at a media briefing on the regional economic outlook on Asia and the Pacific, IMF Director at the Asia and Pacific Department, Krishna Srinivasan said that Sri Lanka is a country with a quintessential problem.
He noted that IMF Fund supported program, which was approved by the Board, places emphasis on one macroeconomic stabilization, bringing inflation down.
“Again, the fiscal consolidation is based on revenue based consolidation. That’s partly because Sri Lanka has among the lowest in terms of revenue mobilization, tax collection, and that goes back to the policy mistake they made pre pandemic, wherein they cut taxes across the board, whether it’s VAT, corporate tax, and personal income tax. So the Fund supported program is a revenue-based consolidation which provides stability to the economy,” he said.
Srinivasan said the IMF also wants to rein in inflation which went through the roof in Sri Lanka.
He said the Fund supported program also addresses governance and corruption issues in Sri Lanka.
“It’s the first country in Asia which has had a deep diagnostic on the issue of governance and corruption and that will feed into the programs going forward. It’s also a program where we have a floor on how the country should support the poor and the vulnerable. And to make sure that the fiscal support they provide is temporary and targeted to the people who need it most. So it’s a very comprehensive program and the fiscal consolidation by itself will not be enough,” Srinivasan said.
Srinivasan said the next step for Sri Lanka is to make good faith efforts to reach a debt agreement with their creditors, including private creditors, and official creditors.
“In terms of growth outlook itself, we had a contraction of 8.7 percent 2022. We have growth contracting at 3 percent in 2023 and then making a mild recovery. But the issue will be for Sri Lanka to implement the program well so that debt can be made sustainable, which is a big difference from previous programs, and the country can be put on the path to prosperity,” he added.
Srinivasan also said that inflation in Sri Lanka has to come down durably because inflation is the worst kind of tax on the poor and the poor and the vulnerable are hurting the most.
“And so you want to get inflation under control. And so that’s something which, again, in terms of monetary policy, with support of fiscal policy, has to bring inflation down to levels which are reasonable,” Srinivasan said.
In terms of debt restructuring, he said that the debt in Sri Lanka was assessed to be unsustainable.
“And that’s why, before the program could be approved, there had to be a path towards restoring sustainability. And that includes restructuring debt to all creditors — private creditors, official creditors, and to some extent, domestic debt, for the simple reason that debt sustainability is quite a big challenge in Sri Lanka. But when you restructure domestic debt, you have to make sure that you also safeguard financial stability,” Srinivasan said.
He noted that the Government is currently working on these issues and a strategy will be made available soon. (Colombo Gazette)
