A salesman waits for customers at a shoe store in the main market as Sri Lankan President Ranil Wickremesinghe announced the 2023 budget amid the country’s economic crisis, in Colombo, Sri Lanka, November 14, 2022. REUTERS/Dinuka Lianawatte/File Photo Obtaining licensing rights
COLOMBO (Reuters) – The International Monetary Fund has not reached a staff-level agreement with Sri Lanka in its first review under a $2.9 billion rescue package, due to a potential shortfall in government revenues, the International Monetary Fund said on Wednesday.
Speaking after a two-week visit to the country, the head of the IMF delegation, Peter Brewer, said that the second tranche of about $330 million under the lending program will not be released until the IMF reaches an agreement at the expert level, and there is no timetable. Specific about the exact date for this. That would happen.
“Sri Lanka has made commendable progress in implementing difficult but much-needed reforms. These efforts are paying off as the economy shows initial signs of stabilization,” the IMF said in a statement.
“The team will continue its discussions in the context of the first review with a view to reaching a staff-level agreement in the near term.”
The IMF delegation said that despite early signs of stabilization, a full economic recovery is not yet guaranteed, and growth momentum remains weak.
In the past six months, Sri Lanka has witnessed a sharp decline in inflation rates to 1.3% in September, the value of its currency has risen by about 12% and foreign exchange reserves have improved.
But the island has struggled to improve its revenues with additional measures likely to be taken in the next budget in mid-November.
Although revenue mobilization has improved compared to last year, the IMF said revenues are expected to be about 15% below initial projections by the end of the year.
“Although this is partly due to economic factors, the burden of fiscal adjustment will fall on public spending if there are no efforts to offset this shortfall. This could weaken the government’s ability to deliver essential public services and undermine the path to debt sustainability.” .
Sri Lanka’s international bonds were not affected by the news and traded slightly higher during the day.
Tradeweb data showed that bonds remain in very distressed territory, trading between 46-48 cents on the dollar. ,
Sri Lanka will need to strengthen tax administration, remove tax exemptions and effectively eliminate tax evasion to raise revenues and signal better governance, the global lender said.
Sri Lanka has accepted offers to exchange about $10 billion of distressed domestic debt for new bonds, making it a step toward meeting debt restructuring requirements ahead of an International Monetary Fund review.
Sri Lanka also held several rounds of talks with bondholders and bilateral creditors including Japan, China and India to reach an agreement to recast its external debt after the payment was suspended in May last year.
Restructuring the island’s debt is also being discussed at a meeting of the Institute of International Finance and the Paris Club scheduled for later in the day, according to the agenda seen by Reuters.
Written by Swati Bhatt and additional reporting by Karin Strohecker and Georgelina do Rosario in London – Prepared by Mohammed for the Arabic Bulletin Editing by Sudipto Ganguly
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