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IMF Executive Board Concludes 2024 Article IV Consultation with Sri Lanka and Completes the Second Review Under the Extended Fund Facility

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The Executive Board of the International Monetary Fund (IMF) completed the second review under the 48-month Extended Fund Facility (EFF) Arrangement, allowing the authorities to draw SDR 254 million (about US$336 million). This brings the total IMF financial support disbursed so far to SDR 762 million (about US$1 billion). The Executive Board also concluded the 2024 Article IV Consultation with Sri Lanka.

The EFF arrangement for Sri Lanka was approved by the Executive Board on March 20, 2023 (see Press Release No. 23/79) in an amount of SDR 2.286 billion (395 percent of quota or about US$3 billion. The first review of the EFF was completed by the Executive Board on December 12, 2023 with disbursements of SDR 254 million (about US$337 million; see Press Release No. 23/439).

The EFF-supported program aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, rebuild external buffers, safeguard financial sector stability, and strengthen governance and growth potential.

Signs of economic recovery are emerging. Real GDP expanded by 3 percent (y-o-y) in the second half of 2023. May 2024 inflation was 0.9 percent and gross international reserves increased to US$5.5 billion by end-April 2024. The primary balance improved to a surplus with tax revenue increasing to 9.8 percent of GDP in 2023. Despite improvements in non‑performing loans, pockets of vulnerabilities remain in the banking sector.

The recovery remains gradual, and the medium-term growth potential hinges on appropriate policy settings. Growth is projected to recover moderately in 2024-25 given constrained bank credit and fiscal consolidation, while facing uncertainties around the debt restructuring and policy direction following the elections. Inflation is expected to temporarily increase due to one-off factors. The current account is expected to remain positive in 2024, driven by improved tourist arrivals and remittances. Domestic risks could arise from waning reform momentum, especially on revenue mobilization. External risks are associated with intensified regional conflicts, commodity price volatility, and a global slowdown. Slow progress in debt restructuring could widen financing gaps.

Following the Executive Board’s discussion,  Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

“Sri Lanka’s performance under its Fund-supported program remains strong. All quantitative targets were met, except for the marginal shortfall of indicative target on social spending. Most structural benchmarks were either met or implemented with delay. Reforms and policy adjustment are bearing fruit. The economy is starting to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate. Despite these positive developments, the economy is still vulnerable and the path to debt sustainability remains knife-edged. Important vulnerabilities associated with the ongoing debt restructuring, revenue mobilization, reserve accumulation, and banks’ ability to support the recovery continue to cloud the outlook. Strong reform efforts, adequate safeguards, and contingency planning help mitigate these risks.

“To restore fiscal sustainability, sustained revenue mobilization efforts, promptly finalizing the debt restructuring in line with program targets, and protecting social and capital spending remain critical. Advancing public financial management will help enhance fiscal discipline, and strengthening the debt management framework is also needed.

“Monetary policy should continue prioritizing price stability, supported by a sustained commitment to refrain from monetary financing and safeguard central bank independence. Continued exchange rate flexibility and gradually phasing out the balance of payments measures remain critical to rebuild external buffers and facilitate external rebalancing.

“Restoring bank capital adequacy and strengthening governance and oversight of state-owned banks are top priorities to revive credit growth and support economic recovery.

“The authorities need to press ahead with their efforts to address structural challenges to unlock long-term potential. Key priorities include steadfast implementation of the governance reforms; further trade liberalization to promote exports and foreign direct investment; labor reforms to upgrade skills and increase female labor force participation; and state-owned enterprise reforms to improve efficiency and fiscal transparency, contain fiscal risks, and promote a level playing field for the private sector.

Executive Board Assessment

Executive Directors commended the authorities’ strong performance under the Fund‑supported program, noting that reforms are bearing fruit. The economy has started to recover, inflation remains low, revenue collection is improving, and reserves continue to accumulate. Directors underscored, however, that important vulnerabilities and uncertainties remain, including with respect to the ongoing debt restructuring and the upcoming elections. Against this backdrop, they called on the authorities to continue strengthening macroeconomic policies to restore economic stability and debt sustainability and to sustain the reform momentum to promote long‑term inclusive growth.

Directors underscored that restoring fiscal sustainability requires additional revenue measures underpinning the 2025 Budget, further tax administration reforms, as well as limiting tax exemptions and making them more transparent. They called for protecting growth‑enhancing and social spending, and for improving the social safety net. Directors welcomed the submission of the new Public Financial Management bill to Parliament, which would strengthen fiscal discipline and establish a solid fiscal framework. They noted that further efforts to strengthen the debt management framework are also needed. Directors welcomed the progress on achieving cost‑recovery in energy pricing, noting its criticality for containing risks from state‑owned enterprises (SOEs).

Directors welcomed the progress made to advance debt restructuring to restore Sri Lanka’s debt sustainability. They called for a swift finalization of the Memorandum of Understanding with the Official Creditor Committee and final agreements with the Export‑Import Bank of China. Directors stressed the importance of seeking comparable, transparent, and timely completion of restructurings with external private creditors consistent with program targets.

Directors emphasized that maintaining price stability remains the top priority for monetary policy, which requires anchoring inflation expectations, continuing to refrain from monetary financing, and the gradual unwinding of government security holdings as markets allow. They also stressed the importance of strengthening central bank independence. Directors underscored the need to continue building external buffers, while maintaining exchange rate flexibility to facilitate external rebalancing and preserve the credibility of the inflation targeting regime. They called for gradually phasing out the balance of payments measures.

Directors underscored the need to strengthen financial sector resilience to support the recovery. They called for swift completion of the restructuring of remaining domestic law, foreign currency loans and for adequate recapitalization of commercial and state‑owned banks. Directors welcomed the enactment of the Banking Act amendments and emphasized the importance of their effective implementation to enhance supervision and the governance of state‑owned banks. They also called for further efforts to strengthen the anti‑money laundering and counter‑terrorism financing framework.

Directors stressed that pressing ahead with governance and structural reforms, supported by development partners and IMF capacity development, is crucial to unlock growth potential. They welcomed the publication of the authorities’ action plan on the key governance reforms recommended in the Governance Diagnostic Report and called for its steadfast implementation. Directors also recommended prioritizing reforms to further liberalize trade, improve the investment climate and SOE efficiency, reduce gender gaps in the labor market, and mitigate climate vulnerabilities.

Sri Lanka: Selected Economic Indicators 2021–2029

 

  2021 2022   2023 2024 2025 2026 2027 2028 2029  
         
   
GDP and inflation (in percent)      
Real GDP 4.2   -7.3   -2.3   2.0   2.7 3.0 3.1 3.1 3.1  
Inflation (average) 1/ 6.0   45.2   17.4   7.0   5.8 5.4 5.2 5.1 5.0  
Inflation (end-of-period) 1/ 12.1   54.5   4.0   6.9   5.5 5.4 5.2 5.1 5.0  
GDP Deflator growth 8.0   47.5   17.5   9.8   6.9 5.4 5.2 5.1 5.0  
Nominal GDP growth 12.6   36.6   14.8   11.9   9.8 8.5 8.5 8.3 8.3  
                             
Savings and investment (in percent of GDP)        
National savings 33.0   27.6   33.9   32.5   31.0 31.3 31.9 31.8 31.8  
  Government -7.3   -6.4   -6.0   -3.4   -1.0 -0.1 0.3 0.7 0.7  
  Private 40.4   34.0   39.9   35.9   31.9 31.4 31.6 31.1 31.0  
National investment 36.7   28.6   30.8   32.1   32.1 32.4 32.8 32.7 32.6  
  Government 7.4   5.5   3.7   5.0   5.1 5.2 5.1 5.2 5.2  
  Private 29.4   23.1   27.1   27.1   27.0 27.3 27.7 27.5 27.4  
Savings-Investment balance -3.7   -1.0   3.1   0.5   -1.1 -1.2 -0.9 -0.9 -0.8  
  Government -14.7   -11.9   -9.6   -8.4   -6.0 -5.3 -4.8 -4.5 -4.4  
  Private 11.0   10.9   12.8   8.8   4.9 4.1 3.9 3.6 3.6  
                           
Public finance (in percent of GDP)      
Revenue and grants 8.3   8.4   11.1   13.6   15.1 15.3 15.4 15.4 15.4  
Expenditure 20.0   18.6   19.4   20.9   20.3 19.9 19.5 19.2 19.2  
Primary balance -5.7   -3.7   0.6   1.0   2.3 2.3 2.3 2.3 2.3  
Central government balance -11.7   -10.2   -8.3   -7.3   -5.2 -4.6 -4.1 -3.8 -3.8  
Central government gross financing needs 31.0   34.1   27.8   24.9   23.7 20.5 16.6 13.1 11.9  
Central government debt 102.7   115.9   109.8   108.8   108.4 108.3 106.6 103.2 100.1  
Public debt 2/ 114.8   126.3   115.7   114.2   113.1 112.5 110.2 106.5 103.1  
                             
Money and credit (percent change, end of period)                            
Reserve money 35.4   3.3   -1.5   18.8   11.0 8.5 8.5 8.3 8.3  
Broad money 13.2   15.5   7.3   14.9   10.4 8.5 8.5 8.3 8.3  
Domestic credit 19.5   18.8   -1.2   9.3   3.6 2.5 2.3 2.4 6.7  
Credit to private sector 13.1   6.4   -0.8   7.2   9.2 9.3 9.5 9.4 9.3  
Credit to private sector (adjusted for inflation) 7.2   -38.8   -18.2   0.2   3.4 4.0 4.3 4.3 4.3  
Credit to central government and public corporations 26.5   31.1   -1.6   11.0   -0.9 -3.4 -4.7 -5.5 3.2  
                             
Balance of Payments (in millions of U.S. dollars)                            
Exports 12,499   13,106   11,911   12,913   13,624 14,261 14,903 15,591 16,384  
Imports -20,638   -18,291   -16,811   -20,059   -22,565 -23,706 -24,362 -25,255 -26,363  
Current account balance -3,285   -744   2,644   412   -926 -1,031 -804 -819 -840  
Current account balance (in percent of GDP) -3.7   -1.0   3.1   0.5   -1.1 -1.2 -0.9 -0.9 -0.8  
Current account balance net of interest (in percent of GDP) -2.1   0.1   4.3   2.8   1.3 1.1 1.5 1.6 1.5  
Export value growth (percent) 24.4   4.9   -9.1   8.4   5.5 4.7 4.5 4.6 5.1  
Import value growth (percent) 28.5   -11.4   -8.1   19.3   12.5 5.1 2.8 3.7 4.4  
   
Gross official reserves (end of period)  
In millions of U.S. dollars 3,139   1,898   4,387   5,605   7,174 9,262 13,466 15,105 15,286  
In months of prospective imports of goods & services 2.0   1.2   2.4   2.7   3.3 4.1 5.8 6.2 6.3  
In percent of ARA composite metric 24.7   16.3   37.8   47.9   58.6 73.1 100.2 108.7 108.5  
Usable Gross official reserves (end of period) 3/        
In millions of U.S. dollars 1,565   462   2,951   4,169   7,174 9,262 13,466 15,105 15,286  
In months of prospective imports of goods & services 1.0   0.3   1.6   2.0   3.3 4.1 5.8 6.2 6.3  
In percent of ARA composite metric 12.3   4.0   25.4   35.6   58.6 73.1 100.2 108.7 108.5  
External debt (public and private)                            
In billions of U.S. dollars 58.4   57.4   52.7   53.6   55.6 58.0 62.3 64.0 65.8  
As a percent of GDP 65.9   77.0   62.5   61.1   64.4 65.7 68.5 67.2 65.0  
                             
Memorandum items:                            
Nominal GDP (in billions of rupees) 17,612   24,064   27,630   30,917   33,958 36,839 39,959 43,287 46,869  
Exchange Rate (period average) 198.8   322.6   327.5      
Exchange Rate (end of period) 200.4   363.1   323.9      
Sources: Data provided by the Sri Lankan authorities and IMF staff estimates.
IMF Communications Department
   

 

 

 

 



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Lebanon parliament elects army chief Joseph Aoun as president

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Lebanon's army chief General Joseph Aoun [Aljazeera]

Lebanon’s army chief Joseph Aoun has been elected as the country’s president after a second round of parliamentary voting, breaking a deadlock that has left the country without a head of state since October 2022.

Aoun only needed a simple parliamentary majority of 65 votes on Thursday afternoon to be elected as Lebanon’s new leader and members of parliament erupted in celebration as Aoun reached the number of votes required to be elected.

Earlier in the day, he fell short of the two-thirds majority of the 128-seat parliament to become president in the first round of voting.  During the first round, he received support from 71 parliament members, 15 short of the required 86 votes.

The Mediterranean country has been without a president since the term of Michel Aoun – not related – ended in October 2022.

Tensions between Hezbollah movement and its opponents scuppered a dozen previous votes.

But international pressure has mounted for a successful outcome with just 17 days remaining in a ceasefire to deploy Lebanese troops alongside UN peacekeepers in south Lebanon after a Hezbollah-Israel war last autumn.

[Aljazeera]

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Appropriation Bill (2025) presented to Parliament

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The Prime Minister and Minister of Education, Higher Education and Vocational Education,  Dr. Harini Amarasuriya presented the Bill entitled “Appropriation”to the Parliament  today (Jan. 9th), to provide for the service of the financial year 2025.

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Hollywood Hills blaze rapidly expanding, fire chief says

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Anna Waldman told the BBC she had had to flee her home with her three dogs [BBC]

A fire official says a blaze that broke out in Hollywood Hills is “rapidly expanding” after a mandatory evacuation order was issued in the area following the spread of the wildfires in Los Angeles.

California fire chief David Acuna told the BBC there had been “zero progress” in containing the fires because of high winds and dry conditions.  “The wind has been blowing consistently at 60-100mph (95-160km/h) since yesterday morning,” Acuna said. “It actually blew harder last night.”

At least five fires are currently active across Los Angeles, with five people confirmed to have been killed.

Wind speeds have dropped to about 30mph, but Acuna said “it is still significant and because there are a lot of open areas it is extremely dangerous”.

More than 130,000 people have already had to evacuate, and the homes of a number of celebrities – including Paris Hilton and Billy Crystal – have been destroyed.

The first fire began on Tuesday in the Pacific Palisades neighbourhood, near Malibu, with others subsequently breaking out across the north of the city.

As of 20:15 local time (04:00 GMT), four fires in the areas of the Palisades, Pasadena, Sylmar, and the Hollywood Hills covered more than 27,000 acres (42 sq miles; 109 sq km) and were 0% contained, according to the LAFD.

One fire in the Acton area had been partially contained, while two others had been completely contained.

The fire in the Hollywood Hills – a residential neighbourhood overlooking the historic Hollywood area of the city – began at around 18:00 local time on Wednesday.

Less than two hours later, much of the heart of Hollywood was blanketed with thick smoke, and the tops of the palm trees that line its streets were barely visible.

People used sweatshirts to cover their faces to help them breathe, while others – clearly surprised by the fire – wore only pyjamas. Many carried bags and suitcases, talking on their phones as they made plans for where to go.

Many of the roads near the fire – including Hollywood Boulevard, home to the Hollywood Walk of Fame – were gridlocked with traffic. Some people even drove on the wrong side of the road as they tried to get out of the area.

Resident Anna Waldman told the BBC she had set out to walk her dog but smelled smoke almost instantly when she went outside.

She went back inside and, looking out her back windows, saw fire, and watched as it moved quickly through the Hollywood Hills, coming to within a block of her home.

She packed what she could: food, clothes, blankets, food for her three small dogs.

“I can’t believe this,” she said in exhaustion, pulling down her face mask.

Makayla Jackson, 26, and her two-year-old son, Ramari, had been evacuated from a homeless shelter that was in danger of burning, and now stood on the street waiting for a ride to a high school where help was being offered to people.

“They just told us to get out and go,” she said.

By Wednesday night Sunset Boulevard, the famous strip in West Hollywood, lay in ruins, according to reports in the LA Times.

Local residents told the newspaper banks, cafes and supermarkets they had frequented for decades were completely destroyed.

Michael Payton, store director of the Erewhon supermarket chain, said the shop, famous for its patronage by Los Angeles A-listers, had survived but that the area was levelled.

“The whole Palisades is done,” he told the newspaper, “The whole town is done. This is complete devastation.”

Firefighters tackling the blazes have experienced water shortages and have had to resort to taking water from swimming pools and ponds.

Officials said three separate one-million-gallon tanks were full before the fires began, but that the elevation of the fires meant water couldn’t move quickly enough to hydrants in the affected areas.

The city also doesn’t typically see fires of this magnitude – the Palisades blaze is already the most destructive in its history – and its systems are designed for urban use, not fighting wildfires.

[BBC]

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