ECONOMYNEXT – Sri Lanka needs more revenues and restructuring debt by September was essential for debt to be made sustainable an International Monetary Fund mission said after a visit to the island.

“The mission discussed additional fiscal efforts that will be critical to ensure successful revenue mobilization,” Senior Mission Chief Peter Breuer and Mission Chief Masahiro Nozaki said in a statement.

“We also discussed progress on debt restructuring, noting the ongoing discussions with both foreign and domestic creditors.

“Achieving timely restructuring agreements with creditors in line with the program targets by the time of the first review is essential to restoring debt sustainability.”

The first review, based on June data is due in September.

The macroeconomic situation in Sri Lanka is showing tentative signs of improvement, with inflation moderating, the exchange rate stabilizing, and the Central Bank rebuilding reserves, the mission said.

“However, the overall macroeconomic and policy environment remains challenging,” the statement said

“Keeping up the reform momentum and ensuring timely implementation of program commitments, including to ensure central bank independence, improve governance, and protect the vulnerable, are key for Sri Lanka to emerge from the economic crisis.”

Sri Lanka is in the worst currency crisis in the history of the island’s soft-pegged central bank which ended in sovereign default in 2022.

The full statement is reproduced below:

IMF Staff Concludes Visit to Sri Lanka

An International Monetary Fund (IMF) mission led by Messrs. Peter Breuer and Masahiro Nozaki conducted a staff visit to Colombo from May 11 to 23, 2023 to discuss recent economic developments and implementation of the Fund-supported program .
At the conclusion of the visit, Messrs. Breuer and Nozaki issued the following statement:

“During the visit, we discussed recent macroeconomic and financial sector developments.

Following strong policy efforts, the macroeconomic situation in Sri Lanka is showing tentative signs of improvement, with inflation moderating, the exchange rate stabilizing, and the Central Bank rebuilding reserves buffers. However, the overall macroeconomic and policy environment remains challenging.

“We welcome the authorities’ ongoing efforts in meeting key commitments under the Fund-supported program. Performance under the program will be formally assessed in the context of the first review of the Extended Fund Facility arrangement, which is expected to be undertaken in September 2023.

The mission discussed additional fiscal efforts that will be critical to ensure successful revenue mobilization. We also discussed progress on debt restructuring, noting the ongoing discussions with both foreign and domestic creditors.

Achieving timely restructuring agreements with creditors in line with the program targets by the time of the first review is essential to restoring debt sustainability.

Keeping up the reform momentum and ensuring timely implementation of program commitments, including to ensure central bank independence, improve governance, and protect the vulnerable, are key for Sri Lanka to emerge from the economic crisis.

“The team met with President and Minister of Finance Wickremesinghe, Governor Weerasinghe, Secretary to the Treasury Siriwardana, senior government officials, members of the opposition parties, CSOs, think tanks, trade unions, the private sector, and development partners. We would like to thank the authorities for the open and collaborative discussions and look forward to our continued close engagement.”