IMF presses for more taxes for revenue-based consolidation of Sri Lankan economy

Lauding Sri Lanka for its “economic recovery programme”, the International Monetary Fund (IMF) on Friday called for the introduction of property tax to widen the tax revenue base for the consolidation of cash-strapped island nation's faltered economy.

The IMF also insisted on “sustaining the reform momentum”.

“Swift progress towards the introduction of a progressive property tax is key to ensuring fair burden sharing while sustaining the revenue-based consolidation,'' a statement issued here at the end of a week-long visit by a mission of the global lender said.

The IMF commended the government for its economic recovery programme in line with the lender's bailout conditions for stringent reforms. It insisted that “sustaining the reform momentum and ensuring timely implementation of all programme commitments are critical to rebuilding confidence and putting the recovery on a firm footing''.

Commenting on economic recovery, the IMF said the real GDP recorded positive growth of 1.6 per cent in the third quarter of 2023, which was the first growth recorded in six consecutive quarters.

“Shortages of essentials have eased and inflation remains contained. Gross international reserves increased by USD 2.5 billion during 2023,'' the IMF said.

The Sri Lankan government’s domestic debt restructuring was well executed, the lender said.

''A swift completion of final agreements with official creditors and solving with external private creditors remain critical.'' Sri Lanka is hoping to restructure USD 17 billion of its outstanding debt and has already reached agreements with some of its external creditors.

The IMF stressed that tax policy measures needed to be accompanied by strengthened tax administration, the removal of exemptions and the reduction of tax evasion to make the reforms more sustainable and build confidence among creditors to support Sri Lanka's efforts to regain debt sustainability.

During the mission, the IMF team also engaged the opposition parties critical of the IMF programme being steered by President Ranil Wickremesinghe.

The main opposition Samagi Jana Balawegaya (SJB) has publicly vowed to renegotiate the IMF programme to bring relief to people hit by Wickremesinghe’s tough reforms implemented on the lender's dictates.

Sri Lanka, which declared its first-ever debt default in April 2022, has so far secured two tranches of the total USD 2.9 billion four-year facility, the seventeenth such IMF programme entered by the island.

The first tranche of USD 1.5 billion was released in March 2023, with the second instalment of USD 337 million arriving in December 2023 following the first review.

As Wickremesinghe faces a presidential election scheduled after September this year, navigating these economic reforms will be a crucial aspect of his political agenda.

Early this month, the government raised the value-added tax and extended it to cover essentials such as fuel, cell phones, cooking gas and medicines.