Report of 5th tranche to Sri Lanka being withheld misleading: IMF

(News 1st) - The International Monetary Fund responding to a clarification sought by News 1st said that the fifth tranche of the $1.5 Bn Extended Fund Facility (EFF) to Sri Lanka is in the process of being reviewed and the Board decision on disbursement is expected in a few months.

The clarification came in the wake of a media report which claimed that the IMF had withheld the disbursement of the 5th tranche due to the government's failure to implement an 'Automatic Pricing Mechanism' (APM) for fuel by March this year.

Under the IMF's Extended Fund Facility, an automatic pricing mechanism for fuel and electricity was expected to come into force by March and in September this year.

An IMF press officer told News 1st that reports claiming the withholding of the fifth tranche over non-implementation of the APM were "misleading"

"Discussions will continue during Spring meetings and the Board decision is expected in a few months," Ting Yan, a Press Officer attached to the IMF told News 1st.

However, the IMF in its latest staff level update said "energy pricing reforms are a priority to contain fiscal risks from State-Owned Enterprises" The IMF also advocated that tax reforms can help reduce the budget deficit and energy pricing will be key to the financial stability of state-owned enterprises.

In January 2018, Central Bank Governor Dr. Indrajit Coomaraswamy said that over 90 percent of Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB) losses were due to the fact that they subsidized fuel and electricity.

Analysts say with the massive setback suffered at the LG polls and possible elections due in the future, the government is unlikely to push difficult reforms such as price formulas for fuel and electricity.

An IMF staff team was in Colombo from 27 February -9 March to hold discussions for the 2018 Article IV consultation and advance the technical work on the fourth review of Sri Lanka’s economic reform program under the three-year Extended Fund Facility.

The staff review said Sri Lanka's weather-battered economy is gradually normalizing but warned of the need to continue with reforms to help boost growth and strengthen the debt management capacity.

According to the IMF, Sri Lanka's economy is projected to grow by 4.4 percent in 2018.

The IMF said despite effective action by the Central Bank to curb credit growth and stabilize inflation, the economy remains vulnerable to adverse shocks due to its sizable public debt and low external buffers.

Against this backdrop, the IMF is urging the government to push ahead with its Vision 2025 strategy to support rapid and inclusive growth through ambitious structural, macroeconomic and social reforms.

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