On 5 February 2016 the IMF released a report following the conclusion of discussions by its staff in Sri Lanka under Article IV of the IMF’s articles of agreement.
The Sri Lankan economy has been performing positively and real GDP growth was 5.2% in the first three quarters of 2015. The fiscal deficit has however exceeded the estimated level and could widen further in 2016. Public debt had risen to more than 74% of GDP by the end of 2015. The external environment is more challenging with risks for emerging market and developing economies from weaker global growth and declining commodity prices.
The IMF staff report notes that urgent measures must be taken to reduce the fiscal deficit. Measures announced in the Budget include the elimination of some special purpose levies, a commitment to eliminate tax exemptions and strengthen the efficiency of the tax administration. The IMF encouraged the government to take a growth and investment friendly approach to lowering the deficit, focusing on measures to raise revenue by broadening the tax base; simplifying the tax system and making it equitable; and improving the tax administration.
