IMF applauds Central Bank’s triumphs over inflation but urges prudent policy ahead

Peter Breuer

• Asserts need for continued focus on anchoring inflation expectations
• Says it remains important for Sri Lanka to continue rebuilding external buffers through strong reserve accumulation
• Calls on authorities to “urgently finalise” amendments to Banking Act, in line with their commitment to IMF-supported programme
• Pushes authorities to seal final agreements with official creditors 

Leveraging the effectiveness of the Central Bank of Sri Lanka on the control over inflation, the International Monetary Fund (IMF) emphasised the importance of maintaining a prudent approach in future monetary policy decisions.

In its end-of-mission statement released yesterday, the IMF asserted the need for a continued focus on anchoring inflation expectations, so that the successful track record achieved by the monetary watchdog so far can be sustained.

The visiting delegation, led by IMF Senior Mission Chief Peter Breuer, pointed out that against continued uncertainty, it remains important for Sri Lanka to continue rebuilding external buffers through strong reserve accumulation. 

“Protecting the poor and vulnerable through improved targeting and better coverage of cash transfers remains critical,” Breuer said issuing an update on the progress noted in Sri Lanka under the Extended Fund Facility (EFF) programme.

To safeguard the stability of the financial sector and bolster its capacity to support economic growth, the IMF called on the authorities to “urgently finalise” amendments to the Banking Act, in line with their commitment to the IMF-supported programme, while implementing the bank recapitalisation plan and strengthen the financial supervision and crisis management framework.

Breuer noted that following the publication of the IMF Governance Diagnostic Report, it is now imperative for the authorities to adopt their own action plan for implementing the recommendations in the report, beyond the priority commitments under the EFF arrangement. 

At the same time, ensuring an enabling environment for governance and transparency reforms is key to bolstering public confidence and facilitating the implementation of these important efforts.

“The authorities have made commendable progress with putting debt on a path towards sustainability. The execution of the domestic debt restructuring was an important milestone,” he said.

However, Breuer asserted that a swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical. 

Speaking to Mirror Business, State Minister Shehan Semasinghe expressed confidence in Sri Lanka sealing the agreement with its creditors, including the bondholders, ahead of the second review.

Progress in meeting the key commitments under the IMF-supported programme will be formally assessed in the context of the second review of the EFF arrangement, alongside the forthcoming 2024 Article IV consultation assessing Sri Lanka’s economic health.

During the visit from January 11 to 19, the IMF team held meetings with President and Finance Minister Ranil Wickremesinghe, Central Bank Governor Dr. P. Nandalal Weerasinghe, Speaker Mahinda Yapa Abeywardana, Minister Kanchana Wijesekera, Minister Wijeyadasa Rajapakse, State Minister Shehan Semasinghe and Secretary to Treasury K.M. Mahinda Siriwardana among others.