The Director of Asia & Pacific Department of the International Monetary Fund (IMF), Krishna Srinivasan, recently commented on Sri Lanka’s potential to achieve prosperity through sustainable debt management, primarily by effectively implementing the IMF-supported program. At a press briefing on the Regional Economic Outlook on Asia and Pacific, Srinivasan noted that Sri Lanka’s fiscal deficits had increased, putting pressure on external accounts, reserves, and exchange rates. He further stated that Sri Lanka’s fiscal consolidation must rely on revenue-based consolidation, as the country’s tax collection is among the lowest in the world.
Sri Lanka recently received green light from the IMF’s Executive Board for a 48-month extended arrangement under the Extended Fund Facility (EFF) program worth SDR 2.286 billion (approximately USD 3 billion) to promote macroeconomic stabilization and inflation control. The program enables Sri Lanka to access financing up to USD 7 billion from international financial institutions and multilateral organizations.
Srinivasan elaborated on the IMF-supported program, highlighting its comprehensive nature. It addresses governance and corruption issues in Sri Lanka and has a floor to support poor and vulnerable populations temporarily and strategically. Srinivasan emphasized that the program’s fiscal consolidation, while necessary, would not be enough. He noted that Sri Lanka must make good faith efforts to reach a debt agreement with its private, official, and other creditors.
Regarding inflation in Sri Lanka, Srinivasan acknowledged that it had come down, albeit from high levels. He stressed the need for inflation to decrease durably, as it is the worst kind of tax on the poor and vulnerable.
Srinivasan also spoke about debt restructuring in Sri Lanka, emphasizing the importance of ensuring financial stability when restructuring domestic debt. Debt sustainability is a significant challenge in Sri Lanka, requiring debt restructuring for all creditors, including private and official creditors.
Overall, Srinivasan expressed optimism that Sri Lanka could achieve prosperity by implementing the IMF-supported program effectively and addressing key economic challenges.
