The International Monetary Fund (IMF) and Sri Lanka recently engaged in further discussions on key economic issues, focusing on tax policies, revenue management, and public sector efficiency. On Sunday, February 10, IMF Executive Director Dr. Krishnamoorthy Subramanian met with Prime Minister Harini Amarasuriya at her office in Colombo to review these matters.
According to a statement from the Prime Minister’s Office, the meeting emphasized the necessity of tax policy reforms and revenue optimization while also exploring strategies to enhance the effectiveness of the public sector. Additionally, Prime Minister Amarasuriya outlined the government’s long-term development plans, stressing policies aimed at ensuring economic stability and fostering sustainable growth.
The discussions come at a time when the Sri Lankan government is attempting to modify certain conditions agreed upon under the IMF-supported Extended Fund Facility (EFF) program. However, economic experts, including former Deputy Governor of the Central Bank of Sri Lanka (CBSL) Dr. W.A. Wijewardena, warn that these constraints may pose challenges in meeting revenue targets.
Dr. Wijewardena pointed out that the government’s fiscal policy is significantly influenced by two major factors: the loan agreement signed with the IMF by the previous administration and the requirements stipulated under the Economic Transformation Act. These commitments make it difficult for the government to achieve its revenue target of 15.1% of GDP for 2025, which equates to approximately Rs. 5.5 trillion.
To meet this target and secure the next tranche of the IMF’s financial assistance, Dr. Wijewardena emphasized the need for new taxes. He noted that without additional tax measures, the country might fail to meet the required revenue levels, potentially jeopardizing the fourth installment of the IMF’s EFF program and violating the provisions of the Economic Transformation Act.
One contentious issue is the property tax, which had been proposed by the previous government as part of its negotiations with the IMF. The current administration has abandoned this tax, creating a revenue shortfall that must be compensated through alternative taxation measures.
Due to these financial constraints, the government’s ability to allocate funds for public welfare programs remains limited. Dr. Wijewardena stated that budgetary policies must align with both IMF obligations and the fiscal targets set by the Economic Transformation Act, making it challenging to introduce significant relief measures for the public.
As Sri Lanka continues its economic recovery efforts, balancing IMF commitments with the nation’s financial needs remains a critical challenge for the administration of President Anura Kumara Dissanayake. The coming months will be crucial in determining how the government navigates these fiscal hurdles while striving for sustainable economic growth.
