The IMF has asked Sri Lanka to urgently bolster its economic funds, narrow the fiscal deficit and put the country’s public finances on a sustainable path.
While the country’s recent economic performance has been positive and a GDP growth of 5.2 per cent was achieved in the first three quarters of 2015, the IMF expressed concern that the fiscal deficit for 2015 is estimated to have exceeded the original budget target.
Based on the budget framework for 2016, IMF staff estimates that the fiscal deficit could widen further.
“While Sri Lanka’s public debt has risen to over 74 per cent of GDP by 2015-end; capital outflows have intensified and the overall balance of payments has deteriorated,” the IMF said at the conclusion of its annual review for which a team of its officials visited the country from February 1 to 5.
These outflows were accompanied by downward pressure on the rupee and a decline in central bank gross foreign exchange reserves, mainly due to short-term capital outflows as experienced in many emerging markets, it said.
The IMF said these imbalances are also set against an increasingly less benign external environment.
Key risks for emerging markets relate to a weaker global growth environment, market volatility, declining commodity prices, and tighter external financing conditions in the context of global rebalancing.