INSUBCONTINENT EXCLUSIVE:
The IMF staff-level agreement with Sri Lanka on a USD2.9 billion programme, confirmed on 1 September, appears to signal a sharp change in
policy settings in order to achieve macroeconomic stability, including through large fiscal adjustment, greater exchange-rate flexibility
and more central bank autonomy, says Fitch Ratings.This should facilitate negotiations with official and private creditors, but the timing
of any debt restructuring agreement remains uncertain, the credit rating agency said in a statement.The Extended Fund Facility will not be
financing assurances have been received from official creditors, and good faith efforts have been made to reach agreement with private
Personal income tax will be made more progressive and corporate income tax and VAT will be broadened, with a goal of achieving a primary
new government on 30 August laid out plans to raise the standard rate of VAT to 15% from 12% from 1 September, and proposed compulsory tax
registration for all residents aged over 18 years
The budget sought to raise government revenue/GDP from 8.2% in 2021 to 15% by 2025, and to reduce public debt/GDP from around 110% at
end-2021 to not more than 100% in the medium term
said it believes the Sri Lankan government has some room to reduce capex, but its non-discretionary expenditure is large
Interest payments and wages were equivalent to 1.3x government revenue in 2021
pose risks to the implementation of reforms and the distribution of IMF funding, even if a debt restructuring is agreed
appears weak, in our assessment, and that the economic growth recovery in 2023-2024 will be constrained by the strong fiscal
restructuring.When the credit rating agency affirmed the Long-Term Local-Currency IDR in May, it assumed that the government would continue
to service local-currency debt
interest costs are large, and omitting it could increase the restructuring burden on holders of foreign-currency debt
The central bank governor in late August affirmed that Sri Lanka would not restructure domestic debt, but this was partly in response to
comments from President Wickremesinghe that appeared to suggest that this policy option was being examined, Fitch said further.Fitch may
the relationship with the international financial community.
This article first appeared/also appeared in https://adaderana.lk
