INSUBCONTINENT EXCLUSIVE:
The Executive Board of the International Monetary Fund (IMF) completed the second review under the 48-month Extended Fund Facility (EFF)
so far to SDR 762 million (about US$1 billion)
arrangement for Sri Lanka was approved by the Executive Board on March 20, 2023 in an amount of SDR 2.286 billion (395 percent of quota or
The first review of the EFF was completed by the Executive Board on December 12, 2023 with disbursements of SDR 254 million (about US$337
on the poor and vulnerable, rebuild external buffers, safeguard financial sector stability, and strengthen governance and growth
potential.The IMF said signs of economic recovery are emerging as real GDP expanded by 3 percent (y-o-y) in the second half of 2023
May 2024 inflation was 0.9 percent and gross international reserves increased to US$5.5 billion by end-April 2024
The primary balance improved to a surplus with tax revenue increasing to 9.8 percent of GDP in 2023
Despite improvements in non?performing loans, pockets of vulnerabilities remain in the banking sector.The recovery remains gradual, and the
medium-term growth potential hinges on appropriate policy settings
Growth is projected to recover moderately in 2024-25 given constrained bank credit and fiscal consolidation, while facing uncertainties
around the debt restructuring and policy direction following the elections
Inflation is expected to temporarily increase due to one-off factors
The current account is expected to remain positive in 2024, driven by improved tourist arrivals and remittances
Domestic risks could arise from waning reform momentum, especially on revenue mobilization
External risks are associated with intensified regional conflicts, commodity price volatility, and a global slowdown
All quantitative targets were met, except for the marginal shortfall of indicative target on social spending
Most structural benchmarks were either met or implemented with delay
Reforms and policy adjustment are bearing fruit
The economy is starting to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate
Despite these positive developments, the economy is still vulnerable and the path to debt sustainability remains knife-edged
support the recovery continue to cloud the outlook
revenue mobilization efforts, promptly finalizing the debt restructuring in line with program targets, and protecting social and capital
Advancing public financial management will help enhance fiscal discipline, and strengthening the debt management framework is also
and safeguard central bank independence
Continued exchange rate flexibility and gradually phasing out the balance of payments measures remain critical to rebuild external buffers
structural challenges to unlock long-term potential
Key priorities include steadfast implementation of the governance reforms; further trade liberalization to promote exports and foreign
direct investment; labor reforms to upgrade skills and increase female labor force participation; and state-owned enterprise reforms to
improve efficiency and fiscal transparency, contain fiscal risks, and promote a level playing field for the private sector.Executive Board
The economy has started to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate
Directors underscored, however, that important vulnerabilities and uncertainties remain, including with respect to the ongoing debt
restructuring and the upcoming elections
Against this backdrop, they called on the authorities to continue strengthening macroeconomic policies to restore economic stability and
debt sustainability and to sustain the reform momentum to promote long?term inclusive growth.Directors underscored that restoring fiscal
sustainability requires additional revenue measures underpinning the 2025 Budget, further tax administration reforms, as well as limiting
tax exemptions and making them more transparent
They called for protecting growth?enhancing and social spending, and for improving the social safety net
Directors welcomed the submission of the new Public Financial Management bill to Parliament, which would strengthen fiscal discipline and
establish a solid fiscal framework
They noted that further efforts to strengthen the debt management framework are also needed
Directors welcomed the progress on achieving cost?recovery in energy pricing, noting its criticality for containing risks from state?owned
They called for a swift finalization of the Memorandum of Understanding with the Official Creditor Committee and final agreements with the
Export?Import Bank of China
Directors stressed the importance of seeking comparable, transparent, and timely completion of restructurings with external private
creditors consistent with program targets.Directors emphasized that maintaining price stability remains the top priority for monetary
policy, which requires anchoring inflation expectations, continuing to refrain from monetary financing, and the gradual unwinding of
government security holdings as markets allow
They also stressed the importance of strengthening central bank independence
Directors underscored the need to continue building external buffers, while maintaining exchange rate flexibility to facilitate external
rebalancing and preserve the credibility of the inflation targeting regime
They called for gradually phasing out the balance of payments measures.Directors underscored the need to strengthen financial sector
resilience to support the recovery
They called for swift completion of the restructuring of remaining domestic law, foreign currency loans and for adequate recapitalization of
commercial and state?owned banks
Directors welcomed the enactment of the Banking Act amendments and emphasized the importance of their effective implementation to enhance
supervision and the governance of state?owned banks
They also called for further efforts to strengthen the anti?money laundering and counter?terrorism financing framework.Directors stressed
that pressing ahead with governance and structural reforms, supported by development partners and IMF capacity development, is crucial to
and called for its steadfast implementation
Directors also recommended prioritizing reforms to further liberalize trade, improve the investment climate and SOE efficiency, reduce
gender gaps in the labor market, and mitigate climate vulnerabilities.
