‘Significant progress’ made on Sri Lanka aid program: IMF

Colombo, June 30 (EFE).- The International Monetary Fund (IMF) Thursday reported “significant progress” toward an aid program for Sri Lanka, saying extensive tax reforms are required to resuscitate the crisis-hit economy.

The global lender stated that the IMF help would need sufficient finance guarantees from the nation’s creditors that debt sustainability would be restored.

“The IMF team had constructive and productive discussions with the authorities on economic policies and reforms to be supported by an IMF Extended Fund Facility (EFF) arrangement,” the lender said in a statement after a 10-day visit to Colombo for consultations with the Sri Lankan government.

The reassurance sparked confidence for the economy to recover after going through its worst crisis since Sri Lanka’s independence in 1948.

“Significant progress was made, and discussions will continue virtually towards reaching a staff-level agreement on the EFF arrangement in the near term,” the IMF statement said.

The statement said the objectives of the new IMF-supported program would be to restore macroeconomic stability and debt sustainability of Sri Lanka.

The statement said measures would also be made to defend financial stability, protect the weak and poor, and advance structural reforms to reduce corruption vulnerabilities and unleash Sri Lanka’s development potential.

Sri Lanka was severely harmed by the government’s economic mismanagement and policy mistakes, as well as the crippling Covid-19 lockdown, which hurt the country’s once-thriving tourism industry and remittances from abroad.

The government’s flawed policies included pegging the dollar, which sparked a thriving underground market and prevented registered banks from getting much-needed foreign currency.

The island nation, running out of gasoline and essential supplies, has requested a rescue from the IMF after defaulting on debt repayment and seeing its foreign currency reserves plummet to new lows.

The IMF team said discussions “advanced substantially”, including the need to reduce the elevated fiscal deficit while ensuring adequate protection for the poor and vulnerable in the country of 22 million people.

“Given the low level of revenues, far-reaching tax reforms are urgently needed to achieve these objectives.”

The team also flagged other challenges like containing rising inflation, addressing the severe balance of payments pressures, reducing corruption vulnerabilities, and embarking on growth-enhancing reforms.

“The authorities have made considerable progress in formulating their economic reform program and we are looking forward to continuing the dialogue with them.”

The island is also in talks with lender countries and other financial organizations about providing bridge financing to help it implement a successful debt-restructuring plan.

The United States has pledged $20 million as additional assistance to ensure food security.

A recent report by the Department of Census and Statistics showed that Sri Lanka’s economy has contracted by 1.6 percent in the first quarter of this year.

According to the United Nations World Food Programme, 22 percent of Sri Lanka’s population were food insecure and in need of assistance.

The country has limited fuel sales to essential services till July 10 amid dwindling stocks. EFE

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