SL likely to face uphill task to reach ambitious IMF-set primary surplus target

12 September 2022 05:40 am - 12 - {{hitsCtrl.values.hits}}

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By Nishel Fernando

Sri Lanka is likely to face an uphill task to reach the ambitious primary surplus target set out by the International Monetary Fund (IMF), which requires a significant increase in State revenue through revenue-based fiscal consolidated measures, according to a top economist.
“The IMF is asking Sri Lanka to reach a primary surplus of 2.3 percent of GDP by 2025. It requires a huge effort even by the standards of large fiscal adjustments in EM. Improvements of more than 4 percent of GDP aren’t common. Sri Lanka is aiming for more than 6 percent,” Deputy Chief Economist at Institute of International Finance (IIF) and former IMF economist Sergi Lanau said in a recent tweet.

According to the staff level agreement reached with the IMF for a fresh US$ 2.9 billion programme, Sri Lanka is given a target to improve its primary surplus 2.3 percent of GDP by 2025 from the projected -4.0 for this year.
In order to reach this target, the government has already announced plans to increase revenue to around 15 percent of GDP by 2025 from the 8.2 percent of GDP as at end 2021.
Under the proposed IMF programme, the government is expected to implement major tax reforms by way of making personal income tax more progressive and broadening the tax base for corporate income tax and VAT. The introduction of a wealth tax is also on the cards.

The government has already restored VAT and other taxes to pre-2019 levels. With these developments, the State revenue is projected to increase to 9.1 percent of GDP this year, with plans to increase it to 11.3 percent of GDP next year.
Prior to the 2019-tax cuts, the State revenue hovered around 12 percent of GDP. Despite restoring the pre-2019 tax structure, Lanau remarked that it would still be challenging for the country to improve State revenue to 15 percent of GDP by 2025.
“..definitely some low-hanging fruit and economic recovery will improve revenue anyway. Getting to 15 percent of GDP in revenue is more complicated,” he added.

Further, he opined that the medium term revenue assumptions outlined in the recent interim budget as optimistic and unlikely to be the basis for a debt sustainability exercise.
Meanwhile, he outlined that participation of China in debt restructuring negotiations would be the key for Sri Lanka to secure IMF executive board level approval for the proposed programme at the fastest pace.

“…dollars won’t flow to Colombo until there’s enough progress with debt restructuring. Zambia took a long time in a similar setup. The key is how easily Sri Lanka can make progress with China’s loans,” he noted.
China remains as the largest bilateral creditor of Sri Lanka. Overall, Chinese debt including both bilateral and commercial, makes up about 8.7 percent of the government’s outstanding external debt stock (including SOE debt).

It took over 8 months for Zambia to secure the IMF executive board approval after reaching a staff level agreement due to China’s delay in joining the official creditor group.
However, the Central Bank remains optimistic of securing required financial assurances from the external creditors by December this year.

Comments - 12

Jude Monday, 12 September 2022 08:04 AM

I reiterate!! Make following changes and thereafter SL will never ever have to borrow money!! Yeah firstly, reduce the parliament members to 100 and 15 cabinet ministers!! Then scrap the provincial councillors and local government councillors!! Then get out of Airline business yeah the gigantic money losing national airline!! If these things implemented then in matter few years SL government will have massive budget surpluses!! That's right!! all the above doable!! Country with 22 million population DON'T NEED 225 MP'S 455 PROVINCIAL COUNCILLORS AND 4239 LOCAL GOVERNMENT MEMBERS YEAH THAT'S A TOTAL OF 4919 politicians!! In another words every 4400 lankans,1 politician!! Huh and we all know about currupt politicians and wastege!! And the Maxi -Billion rupees that take to maintain the massive amounts of unwanted politicians!!

Nelum Monday, 12 September 2022 11:30 AM

This is what everybody wants, but it won't happen through our existing leadership. We need the younger highly educated generation to embrace politics and remove the existing stale politicians.

City Monday, 12 September 2022 02:31 PM

Your correct Mr.Jude .but I think the immediate response should be tax all eligible and collect the the due, also make every citizen (including 225) to declare assets. This could be implemented with short notice and then start with what you had mentioned.

Jude Monday, 12 September 2022 08:13 AM

Reaching those surplus targets are gonna be pipedream!!! Yeah!!

Percy Wijenayake Monday, 12 September 2022 08:29 AM

Free education is another drain on the economy which must be reviewed with a means test, now that a tax file is mandatory for every individual over 18 years age. It is not to late to combat the oversupply of Arts graduate in training as technicians and eventually become scientists or engineers.

BuffaloaCitizen Monday, 12 September 2022 09:21 AM

But Ali Sabry (of crying about his burnt house and never coming to politics) announces the dollar will come down to LKR 300!!! What a hoax group of leaders we have.

Punchi Monday, 12 September 2022 10:04 AM

Who would want to lend money to a scammer, liar, gambler, scoundral, thief and spendthrift unless of not sound of mind or in possession of pawned assets several times the value of any loan

Naman Monday, 12 September 2022 11:36 AM

It is important for SL to carefully use the money that is derived from various Taxations. We need an independent AUDIT commission and Bribery commission. Ranil W, please act on the advice of Jude. Pensions for parliamentarians should be atleast after 15 years of service only.

Nelum Monday, 12 September 2022 11:43 AM

Sri Lanka doesn't have the discipline to reach those targets. Remember we need a selective highly intelligent team to lead the country out of this mess. There is only a handful that are capable in the existing lot, the rest including the prez are dead weights.

Not easy but possible Monday, 12 September 2022 01:12 PM

Jude! You are right on the head. What about expenses to maintain politicians? Eliminate and reduce expenses-way to increase revenue. Agree with education, but what is the role of patriotism in our lives? We are the least patriotic to the nation. You talk of this topic, they will want to pay homage to clergy and we all know the result! The whole nation has to work for this, and there is no short cut. IT IS NOT EASY, BUT POSSIBLE.

Bryan Ekenaike Monday, 12 September 2022 02:10 PM

why do we need 'state ministers' in addition to ministers. isin't this an unwanted duplication to accommodate political egos at the expense of the common man in the street.? and RW applies the term 'frugal' to his speeches!!! JOKE???

Hoping to retire in few years Monday, 12 September 2022 02:48 PM

Finally now a credible, really experienced man has put forward the real situation. Hope our opposition parties really get a good grip on what he's saying to shoot down any IMF induced government plans which might be utterly wrong for our country. All we previously heard was the President, the CB Governor. The Governor is the one who believes the Dollar peg is best, and might be angling to harm our hard work earned EPF holdings with a dirty haircut. The Sajith Premedasa SJB with the slow minded Eran and Harsha has really be taken in by the line of the CB Governor like he's supremely able. They can't see anything wrong at all, which shows they aren't opposing capability.

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SL likely to face uphill task to reach ambitious IMF-set primary surplus target

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