IMF team here, fiscal reforms top agenda

by Lalin FERNANDOPULLE

A team from the International Monetary Fund (IMF) is expected to arrive in Sri Lanka this month to review the conditions for the disbursement of the third tranche of the Stand-by Agreement, said Resident Representative IMF, Dr. Koshi Mathai.

He said the focus of the visit would be to discuss the 2010 Budget and fiscal policy reforms vital to reduce the budget deficit and enhance State revenue.

The IMF at its last meeting in Colombo in February called upon the government to introduce urgent fiscal reforms to bridge the deficit and promote revenue generating sources to the country.

"Reforms in the tax system call for a more simplified and broadbased tax structure to help generate revenue in a more efficient way to the country", Dr. Mathai said.

The disbursement of the third tranche of the Stand-by-Agreement which was expected early this year was put on hold due to the fiscal authorities failing to meet the IMF budget targets for 2009. The IMF budget deficit target was 7 percent of the GDP but year end deficit overshot the GDP close to 10 percent. The IMF approved a loan of US$ 2.6 billion to Sri Lanka mid last year to support the country's dwindling foreign reserves and help put government finances on a more stable footing.

The country's foreign reserves hit rock bottom in early 2009 with hard currency sufficient only to service three weeks of imports.

The second tranche of around US$ 330 million was released in November last year. The IMF program focuses on three elements, namely boosting foreign reserves at the Central Bank, maintaining a sensible monetary policy and reducing the budget deficit.