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Sri Lanka's public debt to rise to 85% of GDP warns IMF

Sri Lanka’s public debt is expected to rise to 85% of Gross Domestic Product (GDP) with the current account deficit widening to 2.5% of GDP warned the International Monetary Fund. 

The IMF's second review of Sri Lanka under the Extended Fund Facility (EFF)., released on Thursday, further found that though progress on structural fiscal reform had been made “political resistance” was stalling some processes including energy pricing reform.

Stressing that public debt continued to remain unsustainably high, the report said,

“Public debt is expected to rise slightly to 85 percent of GDP in 2017 due to still large fiscal deficit and exchange rate depreciation (Annex I). If contingent SOE debt is included, total public debt would rise to 94 percent of GDP (considered as a shock scenario in DSA) and decline below 90 percent of GDP by 2020. The likelihood of such a scenario has increased due to delays in energy pricing reform.”

Stating that the main domestic contributor to the public debt risk was the government’s “further delays in revenue mobilisation, “ the report highlighted that “further revenue mobilisation will rest on stronger tax administration and VAT reforms.”

The report further noted that “more public awareness is necessary to sensitize the general public about the need and future benefits of tax as well as other reforms,” adding that its constituent organisations were involved  with supporting “to improve public awareness to ensure smooth transition to the new income tax system.”

See full report here. 

The 3 year EFF agreement, which was approved in June 2016, facilitates three monetary instalments amounting up to US $1.45 billion with the aim of reducing fiscal deficit and reforming Sri Lanka’s tax system.  To date approximately US $ 325 has been released to Sri Lanka.