IMF urges Sri Lanka govt to narrow fiscal deficit

Feb 05, 2016 (LBO) – The International Monetary Fund urged the Sri Lankan government to narrow the fiscal deficit after a staff mission to Colombo this week to discuss economic developments.

“The mission has advised the government to urgently make a stronger effort to narrow the fiscal deficit and put the public finances on a sustainable path,” a statement said.

“While several measures in the budget (such as elimination of several special purpose levies, and the commitment to eliminate tax exemptions and bolster the efficiency of tax administration) are welcome, the mission highlighted the macroeconomic and financial risks of a large deficit and the associated need to borrow from domestic and international markets.”

The government fiscal deficit for 2015 is estimated to have exceeded the original budget target, the IMF said, adding that based on the budget framework for 2016, estimates suggest the fiscal deficit could widen further.

The mission urged the government to take a growth and investment friendly approach to lowering the size of the 2016 budget deficit.

This would be by focusing mainly on measures to raise revenues by broadening the tax base, simplifying and making equitable the tax system, and improving tax administration, to lay the groundwork for further consolidation and debt reduction while also allowing for higher public investment, it said.

Prime Minister Ranil Wickremesinghe said recently the government would discuss the possibility of IMF support for Sri Lanka’s foreign reserves after capital outflows last year. The IMF made no reference to a support programme in the statement.

The statement can be read here