PM to fast -track IMF negotiations

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Sri Lankan Prime Minister (PM) and Finance Minister Ranil Wickremesinghe have requested for an urgent discussion with the International Monetary Fund (IMF) Managing Director  Kristalina Georgieva to fast track the  staff level  agreement signing process with the IMF, a senior government official told Finance Today.

“Accordingly,  PM  hopes to emphasise the need to sign the relevant agreement within the coming weeks as Sri Lanka has already fulfilled  most of  the IMF’s pre-agreement requirements through recent  pricing and tax reforms,” official said.

The expected staff-level agreement on comprehensive economic policies could be supported by a 36-48 month Extended Fund Arrangement (EFF) with requested access of minimum SDR 2,173.9 million (equivalent to about US$3 billion). This will need to be complemented by the restructuring of external public debt that will result in sufficient creditor participation to restore debt sustainability and close financing gaps.

At present, the Government has taken steps to determine the fuel tariff on the basis of cost. Accordingly, electricity tariffs will also increase in the future. The Government is also taking steps to privatise loss-making SriLankan Airlines. The Central bank has also established a credible and transparent monetary and exchange rate system.

The World Bank and the IMF also emphasised the need for restructuring the financial sector to restore banks’ viability and their ability to efficiently allocate resources to support recovery efforts.

Sri Lanka has already concluded technical discussions with the IMF. Policy level discussions are scheduled to begin this week.

The two sides hope to reach final agreements on Sri Lanka’s debt sustainability. Sri Lanka has already launched a debt restructuring programme to achieve this debt sustainability.

Accordingly, the necessary financial and legal advisors have already been appointed. The appointed financial advisor ‘Lazard’ has already begun discussions with the creditors.

Based on the success of this agreement with the IMF, the Government hopes to receive immediate balance of payment assistance from Japan which is around US$ 1-3 billion.

In addition, the Government intends to obtain the necessary assistance from the World Bank, Asian Development Bank, the Asian Infrastructure Investment Bank (AIIB) and other bilateral and multilateral parties.

Increasing the revenue for economic stability

Accordingly, the Government this week approved changes to the tax structure of Sri Lanka in line with the criteria of the IMF.

The government will take steps to re-introduce the previous (2019) tax structure, Cabinet Spokesman Bandula Gunawardena said yesterday.

The government has decided to introduce a relaxed tax policy later in 2019 to reduce the rates of value added tax, personal income tax, corporate income tax and to shrink the tax base on value added tax and income tax.

As a result, government revenue has dropped significantly (around Rs 600-800 billion per annum).

In this context, the Cabinet has approved the proposal presented by the Prime Minister in his capacity as the Minister of Finance, Economic Stabilisation, and National Policies to instruct the legal Draftsmen to prepare the necessary Bills to amend the following Acts with a view to increasing Government Revenue.

They are; Inland Revenue Act, No. 24 of 2017, Value Added Tax Act, No. 14 of 2002, Telecommunication Levy Act No21 of 2011, Betting and Gaming Levy Act, No.40 of 1988 and Fiscal Management (Responsibility) Act No. 3 of 2003.

Accordingly, PM Ranil Wickremesinghe has proposed an increase in value added tax (VAT) from 8 % to 12 % and a hike in the telecommunication levy from 11.25 % to 15 % with immediate effect.

By Ishara Gamage