WASHINGTON, Feb 6: The IMF has asked Sri Lanka to urgently bolster its economic funds, narrow the fiscal deficit and put the country’s public finances on a sustainable path.
While the country’s recent economic performance has been positive and a GDP growth of 5.2 per cent was achieved in the first three quarters of 2015, the IMF expressed concern that the fiscal deficit for 2015 is estimated to have exceeded the original budget target.
Based on the budget framework for 2016, IMF staff estimates that the fiscal deficit could widen further.
“While Sri Lanka’s public debt has risen to over 74 per cent of GDP by 2015-end; capital outflows have intensified and the overall balance of payments has deteriorated,” the IMF said at the conclusion of its annual review for which a team of its officials visited the country from February 1 to 5.
These outflows were accompanied by downward pressure on the rupee and a decline in central bank gross foreign exchange reserves, mainly due to short-term capital outflows as experienced in many emerging markets, it said.
The IMF said these imbalances are also set against an increasingly less benign external environment.
Key risks for emerging markets relate to a weaker global growth environment, market volatility, declining commodity prices, and tighter external financing conditions in the context of global rebalancing.
“Set against such risks, the mission emphasised the urgent need for Sri Lanka to bolster its economic defences,” the IMF said.
At the conclusion of its visit, the IMF mission also advised the Sri Lankan government to urgently make a stronger effort to narrow the fiscal deficit and put the public finances on a sustainable path.
It highlighted the macro-economic and financial risks of a large deficit and the associated need to borrow from domestic and international markets and urged the authorities to take a growth and investment friendly approach by lowering the size of the 2016 budget deficit.
The IMF recommended to focus on measures to raise revenues by broadening the tax base, simplifying the tax system, improving tax administration, lay the groundwork for further consolidation and debt reduction, while also allowing for higher public investment. (PTI)
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