IMF Reviews $2.9 Billion Loan Program Amid Revenue Shortfall Concerns in Sri Lanka
A Crucial Review Amid Economic Crisis
The International Monetary Fund (IMF) is currently monitoring the anticipated shortfall in Sri Lanka’s revenue collection for the current year. Despite this concern, the shortfall is not expected to disrupt the $2.9 billion loan program that aims to aid the economically beleaguered nation. In recent times, a delegation from the IMF has met with Sri Lankan officials, including the President and the central bank governor, as part of a review of the four-year loan deal agreed upon in March.
This review is of utmost importance for the continuation of the program, which is crucial for Sri Lanka as it gradually recovers from its most severe economic crisis in over seven decades. It is noted that Sri Lanka has managed to meet most of the prerequisites required for the completion of the first review, including making headway on domestic debt restructuring.
The Anticipated Revenue Shortfall
However, concerns are looming over the country’s revenue shortfall for this year, and further deliberations are expected to be conducted to determine the next steps. The deficit could potentially amount to 100 billion rupees (approximately $312 million), according to Sri Lanka’s junior finance minister, Ranjith Siyambalapitiya.
IMF’s Ongoing Support Amid Financial Turmoil
The IMF, a Washington-based lender, approved a nearly $3 billion bailout for crisis-hit Sri Lanka in March. The country has been grappling with its worst financial crisis in over seven decades, triggered by a severe shortage of foreign exchange. The first review of the loan program will take place from mid-September, considering the program’s performance until the end of June. Upon approval by both the staff and the executive board, a disbursement of around $338 million is expected.
Press Briefing by IMF in Sri Lanka
During a recent press briefing in Sri Lanka, Krishna Srinivasan, Director of Asia and Pacific Department, IMF, highlighted the challenging year ahead for the global economy. Global growth is expected to decelerate and bottom out in 2023 due to rising interest rates and Russia’s war in Ukraine. Despite this, Asia-Pacific remains a dynamic region, with domestic demand remaining strong.
For Sri Lanka, the country has been facing a severe crisis due to past policy missteps and back-to-back economic shocks. The IMF’s approval of a 48-month Extended Fund Facility of about $3 billion in March has marked an important step towards the resolution of the crisis. The economy is expected to contract by 3 percent in 2023 before registering a modest growth of 1.5 percent in 2024. The prospects hinge quite critically on the implementation of the economic reform program.
The Five Key Pillars of the Reform Program
The reform program supported under the Extended Fund Facility arrangement is built on strong policy measures and prioritizes five key pillars. These include an ambitious revenue-based fiscal consolidation, restoration of public debt sustainability, a multi-pronged strategy to restore price stability and rebuild reserves, policies to safeguard financial sector stability, and structural reforms to address corruption vulnerabilities and enhance growth.
Despite the challenging policy actions, Sri Lanka has commendably started implementing these reforms. It is now essential to continue the reform momentum under strong ownership by the authorities and the Sri Lankan people more broadly to alleviate the burden of inflation, particularly on the poor, and foster an environment of investment and growth.
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