The International Monetary Fund (IMF) was cranking up pressure on the government of Sri Lanka to do its bidding, Executive Director of Verité Research Nishan de Mel said in a recent televised interview.

The IMF has converted some indicative targets given to Sri Lanka into quantitative targets,

“For example, the IMF has said Sri Lanka must publish the tax breaks it gives to various entities to ensure transparency. This was a normal commitment. Now, it has been converted into a structural commitment. It means that this commitment will be taken more seriously when the IMF releases the next tranche,” he said.

De Mel said that the IMF had insisted that tax exemptions not be given. However, the government continues to do so, he said.

“Successive governments have used the Strategic Development Projects Act (SDPA) to give significant tax concessions to various companies. On 22 December 2023, it used SDPA to give big tax breaks to China Merchants Port Holdings Company Limited (CMPort),” he said.

De Mel said that there should be a way to contrast the revenue forgone from such projects against their potential benefit in a transparent process.

“The IMF, on 12 December 2023, again insisted this. They said giving tax exemptions must end in December itself. But as mentioned, on 22 December, a tax exemption was given.

“This shows we are not serious about the national interest. We must not give tax exemptions if there is no rational basis. The more tax exemptions we give, the more taxes we will have to impose on people. VAT will have to be increased more, etc. The government needs revenue, but there must be some element of justness,” he said.

The Executive Director of Verité Research said that it was likely that the country will be able to finalise external debt restructuring by the end of March 2024. “The going has been slower than expected. Initially, the government said that could be done in June 2023. Then they said August 2023. The deadline was again postponed to December. Now, we are in January. We expect that this can be finalised by the end of the first quarter of 2024,” he said.

The IMF was to give the next tranche by March 2024, but it had been postponed to April, he said.

“It is best if we can finish debt restructuring as soon as possible. We must also ensure that we get an adequate haircut on the debt. It will be hard for us to recover if the haircut is too small,” he said. (RK)