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IMF sees ‘many challenges ahead’ for Sri Lanka’s reform

The International Monetary Fund (IMF) said Sri Lanka has “many challenges” and called for Colombo to pick up the pace of slow structural reforms in its third review of an Extended Fund Facility for the government.

The agreed program will see Sri Lanka given approximately US$ 1.5 billion over 36 months by the IMF under conditions laid out by the global financial body.

“Sri Lanka’s performance under the Fund-supported program has remained broadly on track since the second review,” said a report released this week, noting that “the authorities remain committed to the economic reforms under the program and have undertaken measures to improve government revenue and accumulate international reserves.

However it noted that “going forward, it is important to build on the progress made and accelerate reforms to reduce fiscal and external vulnerabilities” and noted that "political cohesion of the coalition government may be strained in the run-up to the 2020 national elections".

“Nevertheless, Sri Lanka’s high debt burden, large gross financing needs, and weak financial performance of state-owned enterprises increases the importance of further fiscal consolidation,” said  Mr Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director following the Executive Board’s discussion of the review. “Timely progress in structural reforms, including tax administration and energy pricing, will support fiscal consolidation.”

“Many challenges lie ahead to sustain the reform momentum,” continued the report. “The government faces higher debt repayments starting in 2018 at a time when the economy remains vulnerable to shocks. Progress in several structural areas including SOE reforms remains slow.”

“Nevertheless, Sri Lanka remains vulnerable to shocks given its high level of public debt, large financing needs, and weak external position”.

“Nonetheless, many challenges lie ahead to sustain the reform momentum. The government faces higher debt repayments starting in 2018 at a time when the economy remains vulnerable to shocks. Progress in several structural areas including SOE reforms remains slow.”

See the full text of the report and press release here.