The International Monetary Fund Mission in Sri Lanka stated that the country requires a government with a mandate to carry out the reforms outlined in the Extended Fund Facility (EFF) agreement announced on Thursday for US $ 2.9 billion (1).
The IMF’s Senior Mission Chief for Sri Lanka, Peter Breuer, told reporters in Colombo that the political environment is important because reforms must be implemented.
From the standpoint of the IMF, our arrangement is with the people of Sri Lanka. “We are here to assist the country in emerging from the crisis and the people in enjoying future prosperity,” he said.
According to Breuer, the political situation is critical, and the IMF hopes that the country will remain stable so that economic reforms can be implemented.
The International Monetary Fund stated that the agreement for a $2.9 billion bailout package is conditional on Sri Lankan authorities taking the previously agreed-upon steps.
The IMF’s loan conditions include obtaining financing guarantees from Sri Lanka’s official creditors and attempting to reach an agreement with private creditors.
The programme by the International Monetary Funds comprises seven key elements.
1. Increasing fiscal revenue to aid fiscal consolidation
Starting from one of the lowest revenue levels in the world, the programme will implement major tax reforms. These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT. By 2025, the programme aims to achieve a primary surplus of 2.3 percent of GDP.
2. Implementing cost-recovery pricing for fuel and electricity to reduce fiscal risks associated with state-owned enterprises.The team welcomed the authorities’ already announced substantial revenue measures and energy pricing reforms;
3. Reducing the current crisis’s impact on the poor and vulnerable by increasing social spending and improving the coverage and targeting of social safety net programs;
4. Restoring price stability through data-driven monetary policy action, fiscal consolidation, phasing out monetary financing, and increased central bank autonomy, allowing for a flexible inflation targeting regime to be pursued.A new Central Bank Act is a cornerstone of this strategy.
5.Rebuilding foreign reserves through restoring a market-determined and flexible exchange rate, supported by the comprehensive policy package under the program;
6. Ensure financial stability by ensuring a healthy and adequately capitalised banking system, as well as upgrading financial sector safety nets and regulatory standards through a revised Banking Act.
7. Improving fiscal transparency and public financial management; establishing a stronger anti-corruption legal framework; and conducting an in-depth governance diagnostic, with technical assistance from the IMF.
Watch the full video of the press appended below.
