IMF says Sri Lanka on track to economic recovery

The International Monetary Fund (IMF) says following a series of weather-related shocks in 2017, the economy in Sri Lanka is gradually normalizing.

Real GDP growth is projected to rise to 4.4 percent in 2018, supported by a recovery in agriculture and industry and robust growth in services, reaching 5 percent over the medium term. Inflation is projected to revert to around 5 percent by end-2018, as food prices stabilize.

An IMF staff team led by Manuela Goretti visited Colombo from February 27 – March 9 to hold discussions for the 2018 Article IV consultation and advance the technical work on the fourth review of Sri Lankan authorities’ economic reform program under the three-year Extended Fund Facility (EFF).

The IMF mission had constructive discussions with the Sri Lankan authorities on the 2018 Article IV Consultation and made progress towards a staff-level agreement on the fourth review of the EFF-supported program. Program discussions will continue in April in Washington D.C. during the Spring Meetings of the IMF and the World Bank, the IMF said.

The IMF says despite weather-related shocks and some delays in implementation, program performance remains broadly on track. The new Inland Revenue Act (IRA) and the Central Bank of Sri Lanka’s (CBSL) Roadmap towards inflation targeting represent landmark reforms and their successful implementation is critical going forward. Fiscal consolidation is advancing, with preliminary data showing a primary surplus in 2017. The CBSL has been effective in curbing credit growth and stabilizing inflation despite recent pressures, while stepping up its pace of reserve accumulation.

Nevertheless, the economy remains vulnerable to adverse shocks given the still sizable public debt and low external buffers. Looking ahead, to secure these hard-won gains and support inclusive, sustained growth, the reform momentum needs to continue and policy frameworks and institutions further strengthened. (Colombo Gazette)