IMF says Sri Lanka needs to reach deals with creditors, more financing critical for Egypt
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Sri Lanka has to raise its value-added tax to 18pc from 15pc to meet revenue targets
COLOMBO/WASHINGTON (Reuters) – The International Monetary Fund (IMF) said it remains critical for Sri Lanka to swiftly reach final agreements with its official lenders and reach a deal with external private creditors, after concluding a staff visit to the island nation on Friday.
Having received a $2.9 billion bailout loan agreement from the IMF, the South Asian country is on the path to recovery from its worst financial crisis in seven decades, it said.
"The economic reform programme implemented by the Sri Lankan authorities is yielding the first signs of recovery," IMF said in a statement. "However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka's people."
At the beginning of the year, Sri Lanka had to raise its value-added tax (VAT) to 18 per cent from 15pc to meet revenue targets set under the four-year IMF programme.
The IMF said swift progress towards the introduction of a progressive property tax is also key to ensuring fair burden sharing while sustaining the revenue-based consolidation.
It added that tax policy measures need to be accompanied by strengthening administration, removing exemptions, and actively eliminating tax evasion to make the reforms more sustainable and further build confidence among creditors to support Sri Lanka's efforts to regain debt sustainability.
"A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical," Peter Breuer, IMF's senior mission chief in Sri Lanka, added.
Sri Lanka also needs to work on converting ongoing negotiations with bondholders into in-principle agreements and completing the process ahead of the second review which will be held in spring, Breuer said.
In November, a group of creditors holding Sri Lanka's international bonds had said that while they welcomed the country's debt restructuring agreement with its official creditors, the lack of transparency on deals struck so far was regrettable.
The IMF said in a statement that it will formally assess Sri Lanka's progress against the set parameters at the second review.
Separately, Breuer said good governance in fiscal policy is important for the continued recovery of the economy and added that the government would release its action plan on the same in February.
The IMF said Sri Lanka needs to keep pursuing reforms.
"Staying the course on the reform agenda is necessary for this stabilisation to evolve into broad-based and stable growth that will ensure a full and lasting economic recovery benefiting the people," it said in its statement.
IN CAIRO
An IMF team is currently in Cairo to discuss Egypt's $3 billion IMF loan and reform programme, a spokesperson said on Friday amid discussions about additional funding to ease the country's Gaza war-related stresses.
The IMF spokesperson said in an emailed statement to Reuters that the team, led by IMF Egypt Mission Chief Vladkova Hollar, would "continue discussions on the first and second reviews of Egypt's reform programme supported by the IMF's Extended Fund Facility. We will communicate at the end of the visit."
The IMF's Middle East and Central Asia director, Jihad Azour, also was in Cairo earlier this week on an annual retreat with the division's regional offices, and met with Egyptian authorities and regional stakeholders, the spokesperson added.
Egypt has been hit hard by Israel's war against Hamas in neighbouring Gaza, which has hurt tourism bookings and natural gas imports and prompted attacks on Red Sea shipping.
IMF chief spokesperson Julie Kozack told reporters last week that additional financing was "critical" to the success of the Egypt programme, but amounts and potential disbursements were under discussion. Also under discussion was the need for tighter fiscal and monetary policy.
