Whilst commending for considerable progress made, the International Monetary Fund (IMF) has urged the Government to graduate from “intent” to “implementation” if it were to successfully overcome medium to long-term challenges earlier than later.
Specific areas under which swifter implementation for further improvement has been urged include fiscal policy, monetary policy and exchange rate policy, tax reform and financial sector.
“The government’s statement of intent is encouraging, but there can be no guarantee that the reforms will ultimately be implemented as currently intended,” the IMF said in a staff report released over the weekend following successful second and third reviews under the US$ 2.6 billion Stand-By Arrangement.
The report said that the Government has acknowledged that the implementation of the key fiscal reforms has been delayed by one year. “With the war and the elections over, however, they recognise that they now face a unique opportunity to press ahead with a bold reform agenda that incorporates all the elements of the original programme design. They believe that the SBA programme will be important for strengthening the government’s efforts toward meeting its policy goals going forward. In line with this, and to support the wide range of policy reforms that the government is planning to undertake this year and next, the authorities have requested a one-year extension of the programme through end-2011,” the report added.
The government’s policy proposals, if implemented, would address past slippages and put the programme back on track, the IMF report said adding there are risks however.
They included the following:
The government has taken significant steps already to reform the trade tax regime, suspend granting of new BOI tax concessions, and to reform public enterprises, and has indicated positive intentions for further reforms. But some of these reforms will not be fully articulated until late-2010 when the 2011 budget is prepared, and implemented only in 2011. The government’s statement of intent is encouraging, but there can be no guarantee that the reforms will ultimately be implemented as currently intended.
The revenue yield from the current and planned tax reforms is far from certain, with both positive and negative risks. As in 2009, there is the risk that the government would exceed the spending limits spelled out in the budget. A further intensification of the existing international financial turmoil could trigger a quick capital outflow given the some $1½ billion in Sri Lanka’s short-term liabilities to external investors. A sharp increase in imports from the recent trade liberalisation could also put pressure on the balance of payments. Although Sri Lanka has an adequate reserve buffer against these events, they would still have a negative impact on investor confidence. Access to Fund disbursements through future adherence to the programme’s targets should help mitigate these risks.
See page 16 for a brief conclusion of IMF staff’s assessment
source - www.ft.lk
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