IMF backs Sri Lanka’s tax reforms; says it is important to regain confidence of collectors

President Wickremesinghe final month emphasised that searching for the IMF bailout package deal was the one possibility accessible to the debt-ridden nation to beat the continued financial disaster in Sri Lanka.

International Monetary Fund has backed Sri Lanka’s tax reforms. (Representational Image)

By Press Trust of India: The International Monetary Fund on Thursday backed Sri Lanka’s tax reforms and stated they had been important for the cash-strapped nation to regain the arrogance of collectors, amidst protest by the commerce unions in opposition to the federal government’s transfer.

President Ranil Wickremesinghe, who can also be the nation’s finance minister, hiked company taxes to 30 per cent from 24 per cent in January, after elevating VAT (Value Added Tax) to fifteen per cent final 12 months. The Sri Lankan authorities launched tax hikes with impact from January broadly believed to be on demand by the IMF.

“Sri Lanka is among the countries to collect the least amount of fiscal revenue in the world, with tax revenue to GDP ratio at only 7.3 percent in 2021. External creditors are not willing to provide financing to fill this gap,” the IMF stated in an announcement.

The assertion got here as commerce unions are bracing to go for prolonged industrial motion to oppose tax reforms.

On Wednesday, the commerce unions staged a day-long token strike to protest the federal government’s huge tax and utility fee hikes that has introduced each day life within the crisis-hit island nation to a grinding halt and disrupted companies in key sectors like airports, ports and banking.

The commerce unions belonging to numerous sectors referred to as the strike after defying a vital companies order issued by President Wickremesinghe and urged his authorities to withdraw its tax hikes.

The IMF stated that they perceive the hardship folks of Sri Lanka are experiencing presently.

“Increases in the cost of living, loss of employment and livelihood, and falling real incomes have hit large parts of the population, and particularly the poor and vulnerable who have no buffers to withstand these hardships,” the worldwide lender stated.

It added that the present financial disaster has numerous origins, together with the federal government’s lack of ability to fulfill authorities spending wants by its income collections.

The IMF burdened that tax reforms had been wanted as solely “with appropriate tax receipts will the Government will be able to fund essential expenditures, and avoid further slashing of critically important outlays”.

“These reforms will also help regain the confidence of creditors,” it stated within the assertion.

State Minister of Finance Ranjith Siyambalapitiya on Thursday stated the rupee has gained power as a result of measures taken by the federal government within the ongoing financial disaster.

Meanwhile, the Central Bank stated that the rupee was buying and selling at 351.72 to the US greenback on Wednesday – the very best par worth since May, final 12 months.

“The amount of foreign reserves, which was USD 1.7 billion in September 2022, had increased to USD 2.1 billion by the first week of February 2023, achieving a growth rate of 23.5%. That’s an increase of USD 400 million. Food inflation affecting all stood at 94.9% as of September 2022,” Siyambalapitiya stated.

He added that meals inflation had come all the way down to 60 per cent by January 2023.

Sri Lanka was hit by an unprecedented monetary disaster in 2022, the worst since its independence from Britain in 1948, as a result of a extreme paucity of overseas change reserves, sparking political turmoil within the nation which led to the ouster of the omnipotent Rajapaksa household.

The IMF in September final 12 months authorized Sri Lanka a USD 2.9 billion bailout package deal over 4 years pending Sri Lanka’s potential to restructure its debt with collectors — each bilateral and sovereign bond holders.

With assurances from collectors, the USD 2.9 billion facility may get the IMF board approval in March.

The IMF facility would allow the island nation to acquire bridging finance from markets and different lending establishments such because the ADB and the World Bank.

President Wickremesinghe final month emphasised that searching for the IMF bailout package deal was the one possibility accessible to the debt-ridden nation to beat the continued financial disaster.

Published On:

Mar 2, 2023