Sri Lankan team in Washington for IMF talks
A top official level Sri Lankan team headed by Central Governor Arjuna Mahendran is currently visiting Washington DC for further talks with the International Monetary Fund (IMF) on an economic programme supported by a 36-month Extended Fund Facility (EFF), IMF officials in Washington revealed. These talks would be continued till both sides arrive at a consensus on terms and conditions as well as the amount of the fund facility, they added. Meanwhile in Colombo, an IMF visiting team last Tuesday wrapped up a week-long mission where they held discussions with the Prime Minister and other senior officials ahead of anticipated approval of a US$ 1.5 billion to $2 billion standby facility to ward off a precarious balance of payments crisis. These Colombo discussions will be conducted on the sidelines of the Spring Meetings of the IMF and World Bank here, with the objective of concluding a staff-level agreement with the authorities, subject to approval by IMF Management and the Executive Board, in the next two weeks.
Finance Minister Ravi Karunanayake along with Mr. Mahendran are also attending the IMF and World Bank Spring meetings which began on Friday, April 15. This is the biggest-ever spring meeting with finance ministers and central bank governors from IMF member countries numbering 188 along with economic experts like Prof. Joseph Stiglitz, Nobel Laureate and Professor at Columbia University attending the meetings. Around 600 representatives of NGOs will also participate as observers for the first time in the history of IMF meetings. Speaking to reporters in Colombo on Tuesday, Mr. Mahendran said Sri Lanka’s funding requirements this year is US$2.5 billion of which $1-1.4 billion (higher or slightly lower) is expected from the IMF while another $1 billion will come from a remindi-currency bond to be floated in China. The balance will come from domestic borrowings.
Asked whether there is a need to tighten monetary policy, the governor said he believed there wouldn’t be a need for one if there is a ‘soft landing’ for the economy. In Colombo, officials, who declined to be named, said the IMF facility was likely to start disbursing by mid-June. In a statement to the Colombo media on Monday, the IMF visiting team said that they completed the review mission to Sri Lanka and that the mission made ‘significant’ progress towards provision of a 3-year Extended Fund Facility (EFF). At the conclusion of its 12-day visit, the IMF team led by Todd Schneider was quoted in the release as saying that the macroeconomic performance in 2015 reflected a mix-of positive underlying growth momentum, the impact of domestic policies, and an increasingly difficult external environment. It said the EFF will focus on getting more taxes through tax law amendments, upgrade tax collections at Inland Revenue by using computerised systems and addressing outstanding obligations in state enterprises.
“The fiscal deficit expanded, public debt increased, while the balance of payments position deteriorated despite an improvement in the terms of trade. Real GDP growth in 2016 is expected to remain around 5 per cent and inflation in the low single digits. Over the medium term, there is potential for growth to rise closer to Sri Lanka’s estimated potential output level, but prospects will hinge on a policy upgrade in the near term and removing bottlenecks to trade and investment,” he said in the release. The IMF team said that the Sri Lankan government’s proposed economic programme aims to achieve high and sustained levels of inclusive economic growth, restore discipline to macroeconomic and financial policies, and rebuild fiscal and reserve buffers. ”Key objectives underlying the reform agenda include: (i) improving revenue administration and tax policy; (ii) strengthening public financial management; (iii) state enterprise reforms; and, iv) structural reforms to enable a more outward-looking economy, deepen foreign exchange markets, and strengthen financial sector supervision.”