The International Monetary Fund has released the Article IV staff report on Sri Lanka.
The report includes both short and medium term recommendations to restore macroeconomic stability and debt sustainability within the country.
The report claims that the government should focus on strengthening VAT and income taxes, through rate increases and base broadening measures.
The IMF through its report pointed out that the rapid increase in public debt to 119 percent of GDP in 2021, was mainly due to the economy being hit with the COVID-19 pandemic, causing a loss of tourism receipts.
It recommended energy pricing reforms to reduce fiscal risks coming from loss making public enterprises as well.
It called on leaders to developing a comprehensive strategy to restore debt sustainability and tighten short-term monetary policies to ensure that the recent breach of the inflation target band is only temporary.
The IMF also welcomed steps to gradually unwind the CBSL’s large Treasury bill holdings.
IMF officials were of the view that Sri Lanka must gradually restore a flexible exchange rate to avoid disorderly movements in the exchange rate.
Finally the report says social safety nets should be strengthened to mitigate adverse economic impacts on vulnerable groups.
Consultations on the 2021 Article IV with Sri Lanka concluded with the Executive Board Meeting on the 25th of February 25.
Following the meeting, Sri Lanka mission chief Masahiro Nozaki said “The authorities consented yesterday to the publication of the Article IV staff report.
In preparing the staff report, we followed the IMF’s Transparency Policy, which aims at safeguarding the independence of staff’s views in IMF country documents”.
Finance Minister Basil Rajapaksa is due to fly to Washington, USA next month with a comprehensive debt restructuring plan and proposals to the economic crisis in Sri Lanka.
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