“We expect GDP growth of 2.6% in 2019, and a wide fiscal deficit of 5.9% of GDP, with risks of slippage. Government debt will remain above 90% of GDP in 2019. Moreover, Sri Lanka needs to repay c.USD 3bn each year between 2020 and 2024. The new government, once elected, will have a clear 4.5-year mandate to tackle the economic challenges of boosting growth and improving debt sustainability.”
The bank believes that the IMF support is critical to address these issues and negotiating a new IMF programme (the current one ends in June 2020) is crucial to ensure market access.
Hence, the bank expects the new government once it is elected in April, to start negotiations with the IMF immediately to improve the country’s fiscal and debt sustainability, and to seek the fund’s approval for growth-supportive policies and a gradual fiscal consolidation path.
“The first priority is to continue to engage with the IMF to improve the country’s fiscal and debt sustainability. The current IMF programme ends on 3 June 2020; the new government will need to renegotiate with the fund to secure a new programme that wins investor confidence and ensures the market access required to refinance maturing external government debt,” Bank said.
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