Lanka fails to seal first review of IMF's bailout, talks to continue

Despite early signs of stabilisation, full economic recovery is not yet assured and growth momentum remains subdued, says global lander

By Reuters

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A student is detained by police during an anti-government protest against a bailout deal signed by Sri Lanka's President Ranil Wickremesinghe's government with the International Monetary Fund (IMF) in Colombo on August 10,2023. — Reuters file

Published: Wed 27 Sep 2023, 2:56 PM

The International Monetary Fund (IMF) said on Wednesday its staff did not reach a staff-level agreement with Sri Lanka in its first review under a $2.9 billion bailout package due to a potential shortfall in government revenue generation.

"Sri Lanka has made commendable progress in implementing difficult but much-needed reforms. These efforts are bearing fruit as the economy is showing tentative signs of stabilisation," the IMF said in a statement at the conclusion of a two-week visit to the cash-strapped South Asian island.

"The team will continue its discussions in the context of the First Review with the goal of reaching a staff-level agreement in the near term."

The IMF delegation, headed by Peter Breuer, said despite early signs of stabilisation, full economic recovery is not yet assured and growth momentum remains subdued.

The fund also pointed out that revenue mobilisation gains --while improved relative to last year -- are expected to fall short of initial projections by nearly 15% by year end.

"While partially due to economic factors, the onus of fiscal adjustment would fall on public expenditure if there were no efforts to recoup this shortfall. This could weaken the government’s ability to provide essential public services; and undermine the path to debt sustainability."

The global lender said Sri Lanka would need to strengthen tax administration, remove tax exemptions, and actively eliminate tax evasion to increase revenues and signal better governance.