SL’s overall macroeconomic environment still challenging despite tentative progress: IMF

• Says achieving timely restructuring agreements with creditors in line with the programme targets by the time of the first review is essential to restoring debt sustainability

The International Monetary Fund (IMF) yesterday said Sri Lanka’s overall macroeconomic and policy environment still remains challenging despite signs of improvement seen with regard

to inflation, exchange rate and foreign reserves.
An IMF staff mission was in Sri Lanka from May 11 to 23 for regular consultations ahead of the first review of the US$ 3 billion programme, which Sri Lanka secured from the Fund in March.
The team led by Senior IMF Senior Mission Chief for Sri Lanka Peter Breuer and Mission Chief Masahiro Nozaki met with a wide range of stakeholders in the country, including  President Ranil Wickremesinghe, who is also the Finance Minister, as well as the Opposition, civil society organisations, trade unions and think tanks.

“During the visit, we discussed recent macroeconomic and financial sector developments. Following strong policy efforts, the macroeconomic situation in Sri Lanka is showing tentative signs of improvement, with inflation moderating, the exchange rate stabilising, and the Central Bank rebuilding reserves buffers. 
However, the overall macroeconomic and policy environment remains challenging,” a statement issued by Breuer and Nozaki at the conclusion of the mission said.
They said the performance under the programme would be formally assessed in the context of the first review of the Extended Fund Facility arrangement, which is expected to be undertaken in September 2023.

According to the statement, the mission discussed additional fiscal efforts that would be critical to ensure successful revenue mobilisation. 
The mission also held discusssions on the progress of the ongoing debt restructuring discussions with Sri Lanka’s foreign and domestic creditors. 
“Achieving timely restructuring agreements with creditors in line with the programme targets by the time of the first review is essential to restoring debt sustainability,” the statement said.
To negotiate with the country’s creditors, the government is expected to finalise a debt restructuring framework this month. The authorities are hopeful that they would be able to finalise a debt restructuring deal before the first programme review.

In order to achieve debt sustainability, Sri Lanka is seeking US$ 17 billion debt reduction from its creditors through restructuring. 
“Keeping up the reform momentum and ensuring timely implementation of programme commitments, including ensuring Central Bank independence, improving governance, and protecting the vulnerable, are key for Sri Lanka to emerge from the economic crisis,” the statement added.