IMF backs Sri Lanka with waiver on data reporting breach considering corrective action and reform commitment

• IMF Mission Chief Evan Papageorgiou explains underreporting linked to interest subsidies for senior citizens in 2022 and reporting gaps in line Ministries
• Notes Sri Lanka failed to report arrears correctly for three reviews; works with authorities to verify and fix data issues
• Acknowledges progress made by Sri Lankan authorities in putting a plan to clear these existing arrears
• States Executive Board accepted corrective actions under recommendations of IMF Managing Director

By Charumini de Silva

Sri Lanka secured a crucial nod from the International Monetary Fund (IMF) on Tuesday, as its Executive Board approved the authorities’ request for a waiver on missed quantitative performance targets linked to Government expenditure arrears, paving the way for continued financial support under the Fund’s Extended Fund Facility (EFF).

Speaking to journalists on Thursday, IMF Mission Chief for Sri Lanka Evan Papageorgiou made a detailed explanation of the waiver decision, highlighting both the seriousness of the reporting lapses and the authorities’ efforts to rectify them.

He noted that the country failed to meet the quantitative performance criteria (QPC) capping Government expenditure arrears at zero, having underreported these obligations for three consecutive program reviews.

“In the course of regular staff review of the budget appropriation for this year, an inadvertent underreporting of data for Government expenditure arrears was identified. This underreporting on the stock of arrears means that the QPC relating to the stock of Government expenditure arrears, which had a ceiling of zero, was missed in the last three reviews and gave rise to a breach of the authority’s commitment for the provision of accurate data,” he said.

Accordingly, a significant portion of the missing data was related to the legacy interest subsidy scheme for senior citizens that expired in 2022, as well as other liabilities that were disclosed in separate Finance Ministry reports, but not reported to the IMF in the required format.

Papageorgiou noted that additional weaknesses in how line Ministries tracked and shared data on outstanding liabilities had further compounded the issue, creating confusion over the definition of arrears under the IMF’s technical Memorandum of Understanding (MoU).

“So, the combination of these created an under reporting on the stock of arrears, which means that the QPC was missed in the last three reviews. The first review, the second review and the third review, which gave rise to a breach of the authorities’ commitment for the provision of accurate data,” he added.

Papageorgiou however assured that the matter was addressed constructively, noting that the IMF staff work closely with Sri Lankan authorities to verify the correct data and develop a roadmap for clearing existing arrears. “The authorities have indeed undertaken several corrective measures in the interim. Since we started discussing this, they have started reporting to us the full stock of arrears that have been accumulated,” he pointed out.

He also noted that they have made progress in putting a plan to clear these existing arrears. “The authorities committed to improving the processes and practices in keeping track of these areas going forward, and we will also help with technical assistance. There was a lot of clarity from the side of the authorities, as to what was owed to whom. It’s just that it was not reported properly to the Fund under the program requirements,” he explained.

The Mission Chief for Sri Lanka said the Executive Board accepted these corrective actions under the recommendations of the IMF Managing Director, the Board approved the authorities’ request for a waiver of this non-observance for the missed QPC to allow the fourth review be completed.