‘Failure to put in place economic reforms could be dangerous for SL’


By Hiran H.Senewiratne

Sri Lanka will have to focus on economic reforms, with the implementation of the government's high spending cuts and tax rises, which were suggested by the International Monetary Fund (IMF) during the end of its country surveillance process recently.

"The government is likely to receive IMF assistance this year to enhance dwindling foreign reserves and tackle the current balance of payment (BOP) and trade deficit problem. If the government failed to put in place all those reforms the situation will become more dangerous in future, Professor of Economics, University of Colombo, Sirimal Abeyratne told The Island Financial Review.

A team of IMF economists recently visited Sri Lanka to review its economy on 2016 fiscal accounts, to determine the status of unpaid claims, contingent liabilities and other information related to appropriation and spending this year.

He said that in 2009 too Sri Lanka had a financial crisis, and it received a US $ 2.6 billion standby arrangment loan from the IMF to manage the crisis. At that time, IMF recommeded certain conditions/economic reforms to the then government, which they failed to implement. But the government exhausted that money, Abeyratne said.

The government will this time have to adhere to the IMF recommendations to get their future assistance. The government would have to implement their programs on financial or technical assistance, following consent being given for them by the IMF Executive Board, he said.

Abeyratne said that the government has raised US$ 1.5 billion from an India credit line and is now in discussions with the IMF to obtain a US $ 1.5 billion standy loan to manage the present economic crisis.

"The country needs to addresse economic woes by implementing economic reforms, he said.

He said the IMF had earlier advised the government to urgently make a stronger effort to narrow the fiscal deficit and put the public finances on a sustainable path, which has not happened.

The bulk of fiscal consolidation would be realized primarily through raising revenue by broadening the tax base, simplifying the tax structure, bolstering efficiency and fairness of tax administration, establishing a good business environment, increasing governemnt reserves through exports, addressing the government's balance of payment issues and many more measures, Abeyratne explained.

Despite narrowing of the current account deficit, capital outflows have intensified and the overall balance of payments has deteriorated, he said. "These outflows were accompanied by downward pressure on the rupee and a decline in Central Bank gross foreign exchange reserves."

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