IMF urges Sri Lanka to focus on monetary policy to tackle inflation risks

March 2 (Reuters) – The International Monetary Fund (IMF) said on Wednesday that Sri Lanka needed to tighten monetary policy to contain rising inflation, get its high debt repayments back on track and reverse one of the worst financial crises the country has seen in years. .

In a so-called Article IV review, the first since 2018, the IMF stressed the urgency of implementing a credible strategy to restore the country’s macroeconomic stability and reduce debt. He suggested that the Sri Lankan authorities reform public enterprises and adopt cost-recovery energy pricing.

Sri Lanka’s reserves have fallen 70% since 2020, falling to $2.36 billion at the end of January. But the island has debt repayments of about $4 billion this year, including a $1 billion international sovereign bond maturing in July. The scarcity of the dollar prompted some analysts and rating agencies to warn of a potential default. Read more

The shortage of foreign currency has also prevented Sri Lanka from affording essential imports of fuel, medicine and food. The country only has fuel for a few days, prompting motorists to queue at pumps and the island’s electricity regulator to approve five-hour power cuts. Read more

Sri Lanka has so far resisted calls to start talks with the IMF on a program that could reassure investors and possibly help it regain access to international capital markets to repay its debt, after several downgrades to the over the past two years.

The country’s main opposition, the Samagi Jana Balawegaya (SJB), has called on the government to table the Article IV review in parliament and come up with a plan for sustainable economic management.

An Article IV review is compiled by an IMF team that visits the country to assess its economic development and discuss policy with government and central bank officials.

Reporting by Uditha Jayasinghe, Shivani Tanna and Akriti Sharma; edited by Richard Pullin

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