Contingency budgeting, power pricing formula to reduce Sri Lanka disaster risks: IMF
ECONOMYNEXT – The International Monetary Fund (IMF) has recommended Sri Lanka include contingency budgeting for natural disasters in its 2019 budget and an automatic pricing mechanism for electricity to contain fiscal risks from droughts.
“Starting in 2019, the budget should include contingency budgeting for emergency cash support and infrastructure rehabilitation,” the IMF said in the latest assessment by its executive board of its program with Sri Lanka.
“Unused appropriations can be channeled to build up reserves for future disasters, with stringent transparency requirements.”
The recommendations refer to repeated floods and droughts in recent years that had disrupted budgeting, slowed growth and forced the government to shift funds from other programs for disaster relief.
The IMF said Sri Lanka can benefit from a disaster risk financing framework.
IMF staff have welcomed the authorities’ efforts to introduce disaster insurance and increase mitigation spending, and discussed options to improve disaster preparedness, with support from the World Bank:
“The planned introduction of an automatic pricing mechanism for electricity, combined with well-targeted safety nets, can help contain fiscal risks from droughts, given Sri Lanka’s reliance on hydro electricity generation,” the IMF said.
The IMF assessed the risks from weather calamities like floods and droughts as high in the short to medium term.
Such disasters disrupt agriculture production and increase food inflation.
“Higher imports of food and fuel will worsen current account balance,” the IMF said. “Disaster-related spending will challenge fiscal consolidation.”
The IMF’s suggested policy responses like developing a comprehensive disaster financing framework, including contingency budgeting and disaster-linked social protections, and implementing structural reforms to improve growth potential.
(COLOMBO, June 25, 2018)