Sri Lanka's Path to Financial Stability: IMF's Guiding Role

The International Monetary Fund (IMF) advises Sri Lanka to focus on tax compliance and pass a budget aligned with the IMF's parameters to secure continued support. This guidance comes as Sri Lanka aims to manage its fiscal policies better post-financial crisis and to solidify economic recovery.

The International Monetary Fund (IMF) has urged Sri Lanka to forgo tax exemptions and instead prioritize passing a national budget that aligns with IMF parameters. This compliance would ensure Sri Lanka continues receiving support from the $2.9 billion program provided by the international lender.

Sri Lanka's financial recovery has been described as "remarkable" following a serious crisis caused by a foreign exchange shortage three years ago. The IMF recently approved a fourth tranche of $334 million within the Extended Fund Facility (EFF) to assist the nation further. To maintain progress, the IMF highlighted the significance of improving tax compliance, refining social welfare targeting, and optimizing capital spending to bolster public finance management, according to Peter Breuer, IMF's senior mission chief for Sri Lanka.

Moreover, the IMF supports a strategy to restore cost-recovery pricing within Sri Lanka's power sector, which saw a 20% tariff reduction in January. The IMF emphasizes the need for strategic tariff setting that ensures cost recovery in upcoming assessments. Finally, Sri Lanka must complete bilateral agreements with creditors such as Japan, India, and China following a preliminary $10 billion debt rework agreement last June. With the aid of an IMF bailout in early 2023, Sri Lanka has stabilized financial conditions, with significant growth predicted for the coming years.

(With inputs from agencies.)