Sri Lanka set for tough talks with IMF over bailout
ECONOMYNEXT – Sri Lanka is set for tough negotiations with the IMF later this month to secure the next tranche of a $1.5 billion bailout held up due to slower-than-expected progress in economic reforms.
An International Monetary Fund delegation concluded a visit to Colombo early last month without completing its review of Sri Lanka’s economy, a condition to release the next tranche of the loan.
Finance ministry sources said the two sides were unable to agree on meeting some of the IMF conditions in the backdrop of Colombo failing to meet some of the targets set out in the June 2016 reform programme.
"There is pressure to devalue and the government is resisting that," a top finance source said. "But, we are hopeful we can have the programme back on track later this month."
Sri Lanka expects tough negotiations during the spring sessions of the IMF in Washington later this month.
Sri Lanka has promised to fasttrack the delayed Inland Revenue Act, which is designed to simplify tax collection and widen the tax net to enhance state revenue.
The IMF delegation, which held talks with Sri Lankan leaders last month, stressed the need to get the new Act in place. "Advancing the legislative process for the new Inland Revenue Act, with effective public consultations, is a critical step towards rebalancing the tax system toward a more predictable, efficient and equitable structure," they said.
The IMF staff level mission to Colombo last month failed to secure agreement on releasing the next tranche of the bailout.
"The mission made significant progress toward reaching a staff level agreement with the government on completion of the second review. (but) Discussions will continue in April in Washington D.C. during the Spring meetings of the IMF and the World Bank," the IMF said at the time.
Finance Minister Ravi Karunanayake told reporters on Wednesday that he was hopeful that the new Inland revenue Act could be implemented by mid-year. He said a draft had been gazetted and was already being discussed.
He said state revenue had also increased considerably in the past year, with excise tax collection making impressive growth.
The IMF recognised progress, but cautioned that more needed to be done.
"Substantial progress has been made in stepping up revenue collections and automating revenue administration, which has been the basis for meeting fiscal targets," the IMF statement said. It noted, however, that net international reserves fell short of the target and progress on implementing structural benchmarks was uneven, with some of the reforms lagging behind intended timelines.
"Accordingly, the mission and the authorities have discussed decisive actions to maintain the reform momentum in light of uncertain external environment." (COLOMBO, April 14, 2017)