Transcript of Press Briefing on First Review Mission for IMF-Supported Program for Sri Lanka

IMF News, September 27, 2023

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Canonical URL: Transcript of Press Briefing on First Review Mission for IMF-Supported Program for Sri Lanka

IMF team in Colombo since September 14 to conduct the first review under the Extended Fund Facility (EFF) arrangement.
Mission participants: PETER BREUER (Senior Mission Chief), KATSIARYNA SVIRYDZENKA (Deputy Mission Chief), SARWAT JAHAN (Resident Representative in Sri Lanka).
Press briefing date: September 27, 2023.
Recording and transcript will be posted on imf.org.

Inflation: down from a peak of 70% to today 1.3%.
Real GDP: contracting 3.1% in the second quarter this year, on a year on year basis.
Gross international reserves: increased by $1.5 billion between March and June this year.
Reserve accumulation has slowed in recent months.
High frequency economic indicators: described as “still sending mixed signal.”

Government expenditures: “of the order of 19 or so percent of GDP.”
Government revenue: “in the order of 9% of GDP or so.”
Program target: raise revenue equivalent to 12% of GDP in 2024.
Current outlook: revenue mobilization gains improved relative to last year but “are expected to fall short of initial projections by nearly 15% by year end.”
IMF emphasis: strengthen tax administration, remove tax exemptions, and actively eliminate tax evasion to reach revenue objectives.

Steps taken: monetary and fiscal policy adjustments to stabilize the economy.
Financial sector measures: conducting bank diagnostics; developing a roadmap for addressing banking system capital and liquidity shortfalls; improving the bank resolution framework.
Interest rates: reported as coming down (IMF notes reduced interest rates as part of benefits to households).

Key legislation passed in parliament: Central Bank Act and the Anti-Corruption Act.
IMF Governance Diagnostic Report to inform future governance reforms when published.
SOE reform objective: ensure SOEs are run on a commercial basis and do not accumulate additional financial liabilities for the government.
- Policy actions cited: adjustments to fuel and electricity prices; cabinet-approved comprehensive strategy to address cross holdings of debt across SOEs.

New Welfare Benefit Payment Scheme enacted with new eligibility criteria to improve targeting, adequacy, and coverage.
IMF program places importance on social spending as a core pillar.
- For 2023: discussed spending floor on four major cash transfers totaling Rs187,000,000,000 or equivalent to 0.6% of GDP.
- IMF preference: see minimum social spending continue into the next year.
IMF notes that inflation reduction and lower interest rates benefit the poor and vulnerable; program design described as progressive with exclusions for the poorest.

IMF requirement for program progression: clear path towards restoring debt sustainability and successful creditor engagement.
Financing Assurances Review (FAR) applies to both official (bilateral) creditors and commercial creditors.
Debt operations to meet program debt targets: targets relate to debt stock, gross financing needs, external debt service, and required debt relief within the program period.
Domestic debt measures: government has executed domestic debt restructuring; discussions ongoing with external creditors including Paris Club, China, and private creditors.
IMF assessment standard: “adequate progress in the negotiations with the creditors that would give us confidence that this process will be concluded in a timely manner and in line with the program's debt targets.”

To complete the first review and consider disbursement of the second tranche, two conditions:
- Agreement with authorities on policies needed to achieve program objectives (staff level agreement).
- Adequate progress on debt restructuring/financing assurances to restore debt sustainability.
No fixed timeline for second tranche: depends on meeting the policy and debt progress conditions and completion of IMF internal assessment/reporting and Executive Board consideration.
Programs are dynamic: possible to make adjustments to achieve objectives if circumstances warrant.

IMF team to continue discussions with authorities with the goal of reaching a staff level agreement in the near term.
IMF reiterated commitment to providing support to Sri Lanka during the ongoing crisis.

Transcript of Press Briefing on First Review Mission for IMF-Supported Program for Sri Lanka, September 27, 2023, IMF Communications Department.