IMF reports progress in Sri Lanka’s debt restructuring amid economic vulnerabilities

The International Monetary Fund (IMF) states that sufficient progress has been made for Sri Lanka’s debt restructuring process to move forward.

However, the IMF further noted that Sri Lanka’s economy remains vulnerable, and the path to debt sustainability is precarious. Therefore, the country needs to sustain its reform momentum.

Meanwhile, at the IMF press briefing on Sri Lanka’s second review of the Extended Fund Facility (EFF) program held virtually this morning (14th), IMF Senior Mission Chief for Sri Lanka, Peter Breuer, stated that the IMF fully respects the democratic process for elections in any country and will adapt to the relevant process.

Furthermore, he mentioned that the elections might affect the timing of IMF missions conducted to discuss compliance with the program and reforms going forward.

“We, of course, fully respect the democratic process for elections in any country and will adapt to that process. So, this may slightly affect the timing of our missions to discuss compliance with the program and reforms moving forward,” he said. “The elections have not been called yet. We will await that and discuss with the authorities how we can adapt our schedule to that of the elections,” Mr. Breuer added.

In response to a journalist’s question about whether there is scope to adjust the program and reduce taxes by a newly appointed government following the elections, the IMF Senior Mission Chief for Sri Lanka emphasized the significance of how the reduction in government revenues had contributed to the severe crisis in Sri Lanka.

He further said: “I pointed you to these two charts [in the IMF report] to illustrate how the reduction in government revenues had contributed to this very severe crisis in Sri Lanka. Rebuilding these revenues is an important objective of the program to allow Sri Lanka to emerge from the crisis.”

“Of course, we should bring revenue closer to the expenditures that the government is facing to reduce the gap between expenditure and revenue. This will help make the debt sustainable again and enable Sri Lanka to finance itself at affordable interest rates,” he explained.

“More broadly speaking, we are willing to listen to different views on how the program objectives can be reached. These need to be realistic and achievable within the program’s time frame,” he added.

Moreover, the IMF representative stated that the ‘Public Financial Management’ law has now been sent to Parliament, which will help strengthen the fiscal framework and enhance fiscal responsibility.

Mr. Breuer highlighted that the law will help ensure that the funds are being spent by the government as intended.