Sri Lankan economy which showed signs of stabilization in 2016 has continued that trend in 2017, the IMF said.
Sri Lanka’s overall fiscal deficit decreased from 7 percent to 5.4 percent of GDP between 2015 and 2016, with public finances strengthening under an IMF supported program, the IMF country report said. The Extended Fund Facility (EFF) played an important role in helping the authorities to achieve this progress, particularly in implementing reforms and strengthening macroeconomic stability, while strengthening much needed investor confidence.
The IMF Executive Board also expressed optimism that the new Inland Revenue Act will support fiscal consolidation, make the tax system more efficient and equitable, and generate resources for social and development programs.
Further accumulating international reserves and enhancing exchange rate flexibility will help reduce Sri Lanka’s external vulnerability.
Sri Lanka’s overall fiscal deficit decreased from 7 to 5.4 percent of GDP between 2015 and 2016, underpinned by a 2 percent-of-GDP reduction in the primary deficit.
The tax-to-GDP ratio remained unchanged at 12.4 percent in 2016 as one-off revenue increases in 2015 were replaced by buoyant tax collections. Public debt rose from 82 to 84 percent of GDP between 2015 and 2016 largely due to exchange rate depreciation and an increase in guaranteed debt IMF Executive Board had completed the second review of Sri Lanka’s EFF arrangement on July 17, which enabled the disbursement of US$ 167.2 million to Lanka bringing the total disbursements under the arrangement to the equivalent of SDR 359.682 million (about US$ 501.5 million).
In completing the review, the Executive Board granted a waiver of nonobservance of the continuous performance criterion on accumulation of external arrears which was missed due to continued difficulties of establishing a payment platform and waivers of applicability of the performance criteria for end-June 2017 on floor of the central government primary balance and the program net official international reserves of the Central Bank of Sri Lanka, given the unavailability of the information necessary to assess observance.
The government’s reform program, supported by the IMF, aims to reduce the fiscal deficit, rebuild foreign exchange reserves, and introduce a simpler, more equitable tax system to restore macroeconomic stability and promote inclusive growth.
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