IMF wants strong budget measures from Sri Lanka

THE International Monetary Fund (IMF) is looking for a strong budget and narrower deficit from Sri Lanka as it seeks funding to bridge the gap between government revenue and expenditure, the IMF mission chief for the country said last Friday (20).

Sri Lanka plunged into its worst financial crisis in seven decades last year after its foreign exchange reserves dwindled to record lows, but since locking down a $2.9 billion (£2.38bn) IMF programme in March it has managed to partly stabilise its economy, reducing runway inflation and rebuilding reserves.

However, the country has struggled to increase public revenue, with the IMF projecting a 15 per cent shortfall this year. An improved performance for next year is necessary for Sri Lanka to get past the first review of its programme with the global lender.

Sri Lanka reached a staff level agreement with the IMF late last Thursday (19) to release the second tranche of about $330 million (£271m), but still needs approval from the IMF management and executive board.

Regarding revenues, senior mission chief for Sri Lanka, Peter Breuer, said the objective is not to let a shortfall happen next year, and ensure revenue exceeding 12 per cent of GDP.

“Like, approximately 12 months ago, we are, of course, looking for a strong budget that can achieve that with, of course, the objective being that the gap between expenditure and revenues needs to be narrowed so that Sri Lanka can, once again, find creditors who are willing to finance the remaining gap,” Breuer told reporters at an online briefing from Washington DC.

The fund said negotiations between bilateral creditors, bondholders and Sri Lanka are ongoing, adding that further delay might worsen the economic outlook for the country, thereby reducing its capacity to repay. “We urge all official creditors to move forward and agree on an appropriate debt treatment in line with the financing assurances they provided,” the IMF said.

Sri Lanka typically uses borrowings from state banks, taxes and government securities to fund its budget.

The power regulator approved an 18 per cent electricity tariff hike for households in the country with effect from Friday, part of efforts by Sri Lanka to improve revenue of its state-run power monopoly, the Ceylon Electricity Board.

Sri Lanka increased tariffs by 65 per cent in February before reducing them by 14 per cent in June.

The power tariff hike is expected to partly increase the island’s inflation from 1.3 per cent in September to about five per cent by December, analysts said. (Reuters)