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IMF calls for Sri Lanka to focus on robust budget and reduce deficit.

IMF Urges Sri Lanka to Focus on Strong Budget and Narrower Deficit

IMF Mission Chief Emphasizes the Need for Financial Stability

The International Monetary Fund (IMF) is urging Sri Lanka to implement a strong budget and reduce its deficit in order to secure funding. The country is currently facing a significant gap between government revenue and expenditure, which has led to a financial crisis. Last year, Sri Lanka experienced its worst financial downturn in seven decades, with foreign exchange reserves reaching record lows.

Progress in Stabilizing the Economy

Despite the challenging circumstances, Sri Lanka has made progress in stabilizing its economy. The country secured a $2.9 billion IMF program in March, which has helped reduce runaway inflation and rebuild reserves. However, increasing public revenue remains a challenge, with the IMF projecting a 15% shortfall for this year.

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Crucial Review for Continued Support

In order to gain continued support from the IMF, Sri Lanka needs to improve its revenue performance for the upcoming year. The IMF has stressed the importance of revenue exceeding 12% of GDP. The goal is to narrow the gap between expenditure and revenue, making it easier for Sri Lanka to find willing creditors to finance the remaining deficit.

Approval Pending for the Second Tranche

Sri Lanka recently reached a staff level agreement with the IMF to release the second tranche of approximately $330 million. However, final approval from the IMF management and Executive Board is still pending.

Finding a Balance in Funding

Sri Lanka typically relies on borrowings from state banks, taxes, and government securities to fund its budget. The challenge lies in striking a balance between these sources and ensuring financial stability for the country.

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It is crucial for Sri Lanka to address its budget deficit and prioritize financial stability. By implementing a strong budget and increasing revenue, the country can bridge the gap and attract potential creditors. The IMF’s support is contingent upon Sri Lanka’s commitment to narrowing the deficit and achieving long-term economic stability.

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