IMF mission puts SL’s recovery and reform process to the test
Sri Lanka is entering a critical economic juncture when an IMF fact-finding mission arrives in the country from January 22 to 28 in the aftermath of cyclone disaster disrupting the country’s economy, analysts said.
Though not a formal review mission, it is expected to play a significant role in shaping policy when the IMF is to release its next installment of the Extended Fund Facility to Sri Lanka (EFF).
This mission is required because Sri Lanka is struggling to maintain its needs for recovering from the event while meeting obligations to the EFF.
IMF Communications Director Julie Kozack told a media briefing on Thursday in Washington that the “purpose of the visit is to firm up their understanding of the size and scope of the damage caused by the cyclone”.
The team will discuss with the authorities their policy intentions and implications of the impact of the cyclone for the EFF programme.
She further stressed the importance of structural commitments already embedded in the programme. “There is a commitment under the programme to maintain cost recovery in the utility sector, and that’s really important to help ensure fiscal sustainability in Sri Lanka because that would help the utility company to not run financial losses,” Ms. Kozack said.
Energy sector reform is likely to dominate discussions. Sri Lanka has pledged to reduce losses of state-owned enterprises, particularly the Ceylon Electricity Board (CEB), by implementing cost-reflective tariffs in accordance with the EFF.
However, the Public Utilities Commission’s decision to block proposed electricity tariff increases for three months has reopened a policy gap that worries IMF staff. Losses at the CEB ultimately flow back to the Treasury, undermining debt reduction efforts.
A senior Finance Ministry official acknowledged the challenge, noting that “the government remains committed to the IMF programme, but reforms must be sequenced carefully to protect vulnerable groups and maintain social stability”.
A CEB official told the Sunday Times Business that the authorities were working on “alternative mechanisms, including targeted transfers, to ensure that any future tariff adjustments are socially balanced and fiscally credible”.
Aside from the issue of power pricing, the pace of general SOE reform and the politics of subsidy reform remain areas of contention, IMF sources revealed.
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