Sri Lanka has made significant progress with the IMF staff level agreement and has already initiated a number of financial and fiscal sector reforms with the onset of the crisis situation, State Minister of Finance Shehan Semasinghe said.
“However, we are yet to receive financial assurances from our bi-lateral creditors and as a result we have not been able to secure the IMF Executive Board’s approval. But we are confident of securing the approvals as we have received positive signals from two major creditors China and India.”
He said that among the key initiatives taken in recent times is the implementation of a progressive tax reform package to achieve fiscal consolidation.
“Revenue administration reforms are required to strengthen tax compliances, enhance fiscal transparency and reinforce a progressive tax system,” he said addressing the ‘Voice of the South at the G20’ Summit.
“As a result of the current economic crisis, Sri Lanka has already declared its inability to honor debt repayment obligations other than those to multilateral lenders. The loss of confidence in the country’s ability to repay has effectively prevented our access to external resources and this situation pushed the country to seek assistance from the IMF.”
He also said that drastic drop in government revenue has made it difficult for the state to honor statutory payments such as government employee salaries, pensions and other welfare cash transfers which are now carefully managed with the available revenues.
“A program for the enhancement of social safety nets to help cushion the poor and vulnerable communities to mitigate the impact of the economic crisis is now initiated as the government’s primary focus is to finance vital socio economic infrastructure projects and the supply of public utilities, both of which are essential for economic development.”
Rebuilding and strengthening reserves is another key area the government is focusing on. The National Agency for Public-Private Partnership has already established two specialized divisions focused on state-owned enterprises reforms and public-private partnerships.
As a result, restructuring large-scale enterprises such as public utilities, transportation and manufacturing are currently being considered. These measures will help to save a noticeable amount of resources that are incurred annually to sustain these loss or comparatively low revenue making entities.
Structural reforms to strengthen the governance of state owned enterprises and make them financially viable to ensure no burden on state expenditure is also being addressed and several initiatives have been started to create a favorable climate for increased private sector investments in public infrastructure. Further the Debt Management Department of the CBSL currently serves as the Treasury’s agent for the debt management function.
The Financial Sector Reforms have prioritized the necessity of a separate debt management framework. To achieve fiscal responsibility and discipline in government revenue and expenditure, a monitoring function on public finances of the country is very essential. Accordingly, the enactment of a Public Finance Management Act has already been initiated. “It will capture all the vital areas that are currently scattered in different legislations and regulations relating to Public Finance Management.” Moving forward the need for a closely coordinated planning and budgeting framework has been identified as a key for making public investments in the country. “We have not been able to reasonably assess the impact of public investments especially with borrowed funds and its impact on the country’s debt sustainability. Hence, the proposed framework will carefully examine and enable a realistic assessment on investments that are identified for implementation, particularly when using borrowed funds. I wish to extend my heartiest well wishes to the Indian Presidency in the G20.”
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