Wednesday, September 27, 2023

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Update: IMF Executive Board approves US$3 bn under new EFF for SL

By: Isuru Parakrama

Colombo (LNW): The Executive Board of the International Monetary Fund (IMF) today (20) has approved a 48-month extended arrangement under the proposed Extended Fund Facility (EFF), with an amount of about US$3 billion, to address Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability, and strengthen governance and growth potential, the IMF said in a statement.

The IMF Executive Board’s decision, accordingly, will enable an immediate disbursement of about US$ 333 million, and catalyse financial support from other development partners, the statement added.

Below is the statement by IMF Managing Director Kristalina Georgieva on the approved EFF:

“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities. Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported programme with strong ownership for the reforms is critical.

“Ambitious revenue-based fiscal consolidation is necessary for restoring fiscal and debt sustainability while protecting the poor and vulnerable. In this regard, the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor. For the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management, and energy pricing are critical.

“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors make swift progress towards restoring debt sustainability consistent with the IMF-supported programme. The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome.

“Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime. As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer.

“Maintaining a sound and adequately capitalised banking system is important. Implementing a bank recapitalisation plan and strengthening financial supervision and crisis management framework are crucial to ensure financial sector stability.

“The ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation. A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners.”

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