Reform for growth - IMF

Thursday, 14 February 2013 00:22 -     - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

The International Monetary Fund (IMF) yesterday recommended a range of reforms to the Government urging fiscal consolidation, following the announcement that the two would not sign on a fresh loan to fund post-war development.

IMF delegation head John Nelmes confirmed to media that discussions to obtain a fresh loan had not borne fruit but insisted that engagement with the Sri Lankan Government would continue.

He was upbeat on the country’s economy but pointed out that significant reforms had to be implemented to foster sustained growth. These include tax administration, reduction of losses from State-Owned Enterprises and promotion of exports to strengthen revenue streams.

“The authorities from a very broad perspective agreed with the thrust of these reforms and they agreed with the general objectives of the reforms and they noted that they had plans which they would undertake and move towards these objectives on their own appropriate time frame. "

"We will stay in very close contact with the authorities as they implement the reform program and we will continue to enjoy a very closer partnership with the IMF and Sri Lanka but at this point in time but we will not be moving forward with an actual program,” he said.  

Nelmes hinted that the IMF and the Government were unable to agree on a timeline for the implementation of reforms, which was a contributing factor for Sri Lanka not getting a fresh loan.

“There is no single make or break issue,” he remarked, referring to the reasons for the loan discussions to fall through, but faced with a string of questions from the media admitted “that element was also there”.

Sri Lanka’s tax revenue has now fallen to less than 11.5% of GDP, among the lowest in the region, reflecting slowing activity, falling imports, exemptions and issues with tax administration. In the view of the mission measures are needed to broaden the revenue base and strengthen administration to support fiscal consolidation.  

Sri Lanka has targeted an ambitious 5.8% budget deficit for 2013 that Nelmes described as challenging but stressed that it was necessary to keep the country on a sound economic footing. The delegation head emphasised that if revenue areas are increased then the Government could support capital investments through internal funding, which would in turn result in stronger economic growth.  

Providing budgetary loans is not “what we typically do,” he said echoing the Central Bank statement that other options are open for Sri Lanka. He added that since Sri Lanka’s external reserves remained healthy after a US$ 2.6 billion Stand-By Agreement (SBA) completed with the IMF last year, there was little need for extra funds.

“We recognise here that Sri Lanka has made notable progress in a number of areas over recent years. During an Article IV consultation we take a step back for a much broader perspective. Progress has been notable in many areas, growth has been quite robust over the last few years, inflation has declined from well in the double digits to single digits, and fiscal consolidation and external adjustment have taken place and stepping back from a broader perspective these are all welcome developments,” he said.

IMF also predicted Sri Lanka’s economy growth to be 6.25% in 2013.