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Stay on course, IMF advises new Govt.
View(s):- Protect the gains made so far; redouble efforts to achieve social spending targets, says delegation chief
By Bandula Sirimanna and Kapila Bandara
Stay on the macroeconomic reform path to protect the gains so far, rebuild fiscal buffers, and redouble efforts to achieve the minimum social spending target, the International Monetary Fund (IMF) advised Sri Lanka yesterday.
The IMF’s Sri Lanka Mission Chief, Peter Breuer, told reporters in Colombo the government had assured its commitment to adhering to the conditions set by the US$ 2.9 billion Extended Fund Facility (EFF) supported by the IMF.
He announced that the IMF team reached a staff-level agreement with President Anura Kumara Dissanayake’s government, which has declared the need for wider social spending, including for the 1.6 million less-abled.
The IMF broadly defines social spending, a key policy lever, as social protection (such as pensions), health, and education spending.
Once this review is approved by the management and Executive Board of the IMF, Sri Lanka would get access to about $333 million of fresh money, taking the disbursed amount under the EFF to about $1.3 billion.
This pledge of the new government has also strengthened confidence in policy stability and continuity to ensure the country’s economic recovery and inclusive growth.
The IMF delegation was in Colombo from November 17 to 23. About US$3 billion in support was approved for Sri Lanka on March 20, 2023.
Mr. Breuer noted that indicative targets for social spending as of the end of September had not been met.
Even at the second review in June, the IMF said the social spending target had not been fulfilled as of the end of December 2023. IMF-dictated reforms are mainly aimed at ensuring macroeconomic stability and debt sustainability. In 2022, public debt was 128% of economic output.
The economic crisis in Sri Lanka has afflicted most of its population, and the IMF says the country needs broad-based benefits from economic recovery. This is to seal the gains of the current reforms and put Sri Lanka on a path of long-term economic stability.
The biggest challenge Sri Lanka faces is that of completing the unfinished agenda of debt restructuring, which involves sorting out $12.5 billion in bondholder debt and addressing $10 billion in bilateral debts owed to its key international creditors, Japan, China, and India. For the IMF programme to forge ahead, successful negotiations on debt restructuring were critical, he said.
The fourth review of the IMF’s programme will begin once the newly proposed economic package is submitted to the Sri Lankan parliament.
Mr. Breuer also said, “The government has an important responsibility to protect the poor and vulnerable at this difficult time. It is important to redouble efforts to meet the programme’s minimum spending target on social spending and to improve targeting, adequacy, and coverage of social safety nets, particularly Aswesuma.”
The IMF has also emphasised the need to maintain a stable reform course that would safeguard the progress made so far and place Sri Lanka on a sustainable and inclusive economic growth path.
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