The International Monetary Fund (IMF) on Wednesday said the upcoming budget is unlikely to involve any new tax reforms but, with state energy sectors suffering losses, an increase in fuel prices would possibly off-set this concern.
At the conclusion of their visit the staff mission led by Dr. Brian Aitken told reporters in Colombo that the state energy enterprises’ recent performance was a concern as the lack of rain and high international oil prices and current policies would result in financial losses at the CEB and the CPC this year. The IMF team was in Colombo to conduct discussions for the Seventh Review of the Standby Arrangement with the government, Central Bank officials, the private sector and civil society as well.
But it was pointed out that in the medium term they expected the two state institutions to break even and operate on a more commercial basis.
Dr. Aitken pointed out that due to the losses the government may have to go in for a price change while adding that electricity prices were quite high.
The tax reforms remain an important issue and the Fund expects the government to put in place a “stable and predictable” regime. In this respect, they do not expect another stage of tax reforms at the next budget.
With the economy expanding rapidly growth is set to be achieved at around 7.5% this year. With food and commodity prices on the slide the headline inflation has moderated accordingly with no signs of “economic overheating.”
However, it was noted that the Central Bank must limit its intervention and allow more exchange rate flexibility. The flexibility in the exchange rate, which has appreciated substantially in real terms over the past two years, is also an essential component in ensuring Sri Lanka’s export competitiveness.
The IMF explained that in the wake of an uncertain global environment creating importance for building foreign exchange reserves, the Central Bank’s non borrowed reserves have steadily declined reflecting foreign exchange sales.
In this respect, the IMF asserted, “This policy does not seem to be in line with the current fundamentals of the economy.”
Noting they expect to see more FDI it was pointed out that Sri Lanka currently needs an increase in the level of investment both domestic and foreign, Dr. Aitken said.
Currently FDIs to Sri Lanka have reached around US$400 million the Fund said adding that the target of US$900 million is “achievable.”
The government had also conveyed its willingness to remain engaged with the IMF and in this respect, Dr. Aitken said, “We will continue to come frequently and give assessment” even after the conclusion of the IMF standby Agreement. |
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