Speech

Opening Remarks by Peter Breuer, Senior Mission Chief for Sri Lanka at the Press Briefing on Sri Lanka

December 12, 2023

Today, the IMF Executive Board completed the first review under the 48-month Extended Fund Facility with Sri Lanka, providing the country with access to SDR 254 million (about US$337 million). This brings the total IMF financial support disbursed so far to SDR 508 million (about US$670 million) out of the total amount of SDR 2.286 billion (about US $3 billion). The program continues to support Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms (See Press Release No. 23/439).

Today’s Board approval recognizes the challenging policy actions implemented by the Sri Lankan people to put the crisis behind them. Sri Lanka’s performance under the program was satisfactory. All quantitative performance criteria for end-June were met, except the one on expenditure arrears. All indicative targets were met, except the one on tax revenues. Most structural benchmarks were either met or implemented with delay by end-October 2023. These macroeconomic policy reforms are starting to bear fruit and the economy is showing signs of stabilization, with rapid disinflation, significant revenue-based fiscal adjustment, and reserves build-up.

The key to transitioning from stabilization to a full and swift recovery is sustaining the reform momentum amid strong ownership by the authorities and the Sri Lankan people more broadly. We encourage the authorities to continue to build on these hard-won gains and further advance revenue mobilization, align energy pricing with costs, strengthen social safety nets, rebuild external buffers, safeguard financial stability, combat corruption and enhance governance. Reenforcing the revenue-based fiscal consolidation with revenue administration reforms is critical to recover from program slippages and to fund the provision of essential government services. The Central Bank of Sri Lanka should continue to focus on the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime. Accumulating reserves, supported by exchange rate flexibility, remains an important priority under the EFF. Implementing the bank recapitalization plan and strengthening the financial supervision and crisis management frameworks are crucial to safeguarding financial sector stability. We encourage the authorities to remain steadfast on their reform commitments.

Commendably, Sri Lanka has also reached important milestones in putting debt on the path towards sustainability. Sri Lanka’s agreements-in-principle with the Official Creditors Committee and the Export-Import Bank of China on debt treatments are consistent with the program targets. It is now important for the Sri Lankan authorities and the official creditors to sign the respective Memoranda of Understanding. Timely implementation of the agreements, together with reaching a resolution with external private creditors, should help restore Sri Lanka’s debt sustainability over the medium term. IMF staff will continue to assist the authorities with creditor coordination in line with the IMF’s policies.

The publication of a Governance Diagnostic Report, the first in Asia and a structural benchmark under the program, is another commendable step taken by the authorities. Continued commitment to improving governance and timely implementation of the report’s recommendations can deliver tangible economic gains to the citizens of Sri Lanka. We look forward to further engagement and collaboration with stakeholders and civil society organizations on this critical reform area.

Finally, we welcome the authorities’ firm commitment to strengthen social safety nets, including through a minimum spending floor, the selection of beneficiaries through objective eligibility criteria, and well-targeted spending through the dynamic Social Registry. We emphasize the importance of continuing to support the poor and the vulnerable.

We would like to thank the authorities for their commitment and look forward to our continued close engagement.