IMF urges govt to increase revenue measures

Hot on the heels of Sri Lanka rejecting further financial assistance from the International Monetary Fund (IMF), the IMF staff mission Chief yesterday urged the Lankan authorities to take a concerted effort to increase the revenue measures of the country, which is now among the lowest in the region, in order to bolster the country’s development agenda.

“The IMF is ready to support the reform agenda of Sri Lanka. But we like to see a concerted effort from the government to increase the revenue measures. The tax revenues have now fallen to 11.5 percent of the GDP, which is much below compared with the other regional peers. If the tax revenue can be increased, it will enhance the ability of the government to finance the development through domestic revenue sources without resorting for the IMF funding,” said John Nelmes.

The staff mission pointed out the slowing activity, falling imports, exemptions and issues with tax administrations as the reasons for the extremely low tax revenue and urged the authorities to broaden the revenue base and to strengthen the tax administration to support fiscal growth.

Meanwhile, according to the Budget 2013, the government projects to increase the tax revenue to Rs.1,132 billion, which accounts to a little above 14 percent of the GDP.

Nelmes, who had also met the Treasury Secretary, the Central Bank Governor, the Opposition Leader among many other stakeholders during his regular Article 4 consultations between January 30 to February 13 emphasized, “There was no reason to support the Sri Lankan Budget by the IMF as it was out of the IMF’s core mandate and further, the government had demonstrated strong commitment towards fiscal consolidation, which is expected to have reached the target of 6.25 percent of the GDP in 2012.”

Nevertheless, he said that during the visit, the staff mission had had discussions with the authorities for a possible Extended Fund Facility, where a number of issues were touched in the sphere of further fiscal reforms.

“Authorities agreed with the reforms particularly in the areas of energy price revision and noted they already had plans which they would undertake at the appropriate time,” Nelmes said in a positive note.

He also agreed that there were some disagreements on a multitude of issues during the discussions, which were not disclosed in entirety at the media briefing held yesterday, but cited the timing for another programme might not be the ideal, perhaps because it has been just eight months from the completion of the Stand-by Arrangement of which the repayment also begins this year.

Nelmes also raised concerns of the country’s higher single digit inflation (which peaked to 9.8 percent in January from 9.2 percent a month ago), plummeting exports both as a percentage of the GDP and as a share of international market and the government debt to the GDP (which increased to 80 percent in 2012 from 78.5 percent), while projecting a real growth in the economy of 6.25 percent in 2013, significantly below the Central Bank’s projection of 7.5 percent.