Written by Amani Nilar
26 Mar, 2022 | 11:02 am
COLOMBO (News 1st); The International Monetary Fund issued a press release highlighting recommendations to be made to ensure that Sri Lanka regains its economic stability under article IV, and have highlighted the importance of shielding the domestic financial sector from offshore banking activities in the Port City.
According to the IMF, the Port City is an important opportunity for investment promotion and for testing growth-enhancing structural reforms. However, to maximize its benefits while minimizing associated risks, there is a need to ring-fence tax concessions, ensure compliance with international tax and AML/CFT standards and to shield the domestic financial sector from offshore banking activities in the Port City.
Moreover, the tax concessions offered in the Port City should be clearly codified and carefully ringfenced through rigorous regulations while the administration should exercise its discretionary power in granting tax concessions and exemptions given, the IMF adds.
In IMF staff’s view, Sri Lanka’s debt is unsustainable. Based on staff analysis, fiscal consolidation necessary to bring debt down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem. Under the baseline, public debt would keep increasing throughout the projection horizon, reaching 125.3 percent of GDP in 2026, and interest payments will remain above 70% of tax revenues throughout the projection horizon. The deficit generates financing needs that exceed the domestic financial system’s capacity.
In the recommendations, the IMF highlights that in order to restore macroeconomic stability and debt sustainability, implementing a credible and coherent strategy covering both the near and medium term is needed.
The recommended response of Sri Lanka should be as follows, according to the IMF;
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