The International Monetary Fund is assessing Sri Lanka’s budget as part of the next review of the Extended Fund Facility, an official said.
“…[S]taff are reviewing the published budget documents to evaluate whether the 2026 budget is in line with the program parameters,” Julie Kozack, Director, Communications Department at the IMF told reporters in Washington.
“And of course, this assessment will be an important part of the review that will be discussed by the Board in the coming weeks.”
Sri Lanka’s budget has been widely hailed as being fiscally prudent and maintaining policy stability.
Sri Lanka’s post-war growth has been stalled primarily due to lack of monetary stability, coming from a mid-corridor targeting (operational target) under flexible inflation targeting and also potential output targeting.
Under potential output targeting the central bank in printed money in a bid close a so-called statistical ‘output gap’ rejecting classical economics leading to Groundhog Day style currency crisis.
Sri Lanka is now believed to be growing above ‘potential output’ despite stiff tax hikes purely on stability coming from the pressure taken off families and businesses by the central bank missing its inflation targeting.
However, lifting the country to high growth path requires more freedoms for the people (not just freedom from 5-7 percent inflation), but also the ability to trade freely and use land and other resources they see fit, analysts say.
Meanwhile the IMF also outlined some reforms.
“With respect to the structural reforms that will be key to lifting — the structural reforms are going to be key for further increasing Sri Lanka’s potential growth,” Kozack said.
“And let me highlight just a few areas where we think reforms are needed or should continue. So, it’s continuing efforts on liberalizing trade of facilitating related reforms, improving, and streamlining regulations around FDI.
“Also, it’s important to speed up the implementation of the governance reforms outlined in the government’s action plan.”
Sri Lanka’s budget outlined an intention to reduce some import taxes but the time period is slow.
Meanwhile under IMF backed reforms so-called SVAT has been removed, discouraging exporters from using domestic inputs.
East Asian export powerhouses (which also have monetary stability and inflation closer to zero) have zero rated input sales into free zones and also sales within zones, putting Sri Lankan exporters at a disadvantage.
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