The International Monetary Fund’s (IMF) Senior Mission Chief for Sri Lanka, Peter Breuer, has praised the country’s economic recovery in recent years. He noted that as economic opportunities improve, incomes will rise, and poverty will decline, making Sri Lanka a more attractive place to stay rather than emigrate.
Addressing a media briefing following the IMF Executive Board’s completion of the third review of Sri Lanka’s Extended Fund Facility (EFF) program, Breuer highlighted that the country’s foreign reserves have grown significantly under the program.
“Reserves have increased significantly under the programme, they have reached about half of the programme objective already, which is very impressive,” he said.
“Sticking with the reforms is really the best way out for Sri Lanka to assure its sustainability and it’s important for everyone to recognise that. This is the last budget where there is still a bit of an increase needed, 1.5% of GDP. But all the hard adjustment had already taken place in the previous two years,” Breuer said, noting of the importance of continuing with reforms to ensure long-term sustainability.
The IMF also expressed expectations regarding Sri Lanka’s amended Economic Transformation Bill, particularly in maintaining commitments such as refraining from granting tax incentives.
Electricity tariffs and financial concerns
Addressing the reduction in electricity tariffs in January, Breuer warned that the adjustment has moved away from cost-reflective pricing, which could lead to financial losses for the Ceylon Electricity Board (CEB).
“This is when we felt that the cost-reflective pricing was no longer met. On a forward-looking basis, that tariff cut meant that the CEB wouldn’t be able to avoid any losses. These cuts implied that losses would be run. This is a concern we have, it could start building up again that could ultimately become a contingent liability for the government. Avoiding this,” he stressed, “was an important part of the program.”
Vehicle imports and foreign reserves
The IMF also weighed in on Sri Lanka’s decision to lift import restrictions on vehicles, cautioning about its potential impact on the country’s balance of payments.
“There is a question as to what extent the central bank should intervene to make those reserves available, versus allowing the exchange rate to fluctuate in response to market forces. That is something which remains to be seen,” Breuer said.
Sri Lanka’s economic trajectory
Looking ahead, the IMF official expressed confidence in Sri Lanka’s economic recovery, noting that the country has regained 40% of the income lost over the past five years.
“In a short amount of time, you have significant recovery, you have the most recent growth number of 5.5%. Things are turning around significantly in Sri Lanka. As economic opportunities return to Sri Lanka, incomes will increase and poverty reduced. And also it will be more attractive to remain in Sri Lanka, not leave and emigrate,” Breuer opined. (Newswire)