Competitiveness is vital to unlock SL growth potential, says IMF Resident Rep

September, 13, 2018

Sri Lanka Economic Summit 2018, organized by the Ceylon Chamber of Commerce (CCC) was inaugurated this morning (13) at Cinnamon Grand Colombo. The two-day event is scheduled to be held on 13th and 14th September.

Addressing the first session of Day-1 of the summit, Dr Eteri Kvintradze, Resident Representative in Colombo, International Monetary Fund, commented on the regional context and Sri Lanka’s specific reformed priorities.

“Global growth contribution of Asia remains the highest, but Asia is aging, productivity is slowing, inequality increasing and trade wars threatened economic gains from past decades.”

“We had also recent episodes of capital outflows in emerging markets which led many Asian currencies to depreciate. One important aspect in terms of structural context to keep in mind is that Asia is aging fast. Asia is at the risk of getting old before it gets rich.”

Commenting on Sri Lanka’s aging profile, Dr Kvintradze said that Sri Lanka is closer to East-Asian neighbours, and however, in terms of developmental gains and growth potential rate, there are lots of steps that Sri Lanka needs to take.

Asia has became highly integrated in global trade in past two decades and that any escalations of trade tension obviously threatens trade linkages and supply chains, Dr Kvintradze commented, emphasizing on the impact of trade in growth potential.

“Countries which have twin deficits, like Sri Lanka, are the most vulnerable. Sri Lanka has high debt and low revenues.

As past episodes of worsening global environment showed, if Sri Lanka continues on the past of fiscal consolidation, maintains consistently and persistently reform effort which were underway in past couple of years, investor confidence could actually strengthen and remain in Sri Lanka.

Second aspect of vulnerability for Sri Lanka is obviously current account deficit, low reserve position and high debt over low requirements. To manage these vulnerabilities SL needs to maintain adequate reserve cover and strengthen its reserved position further.”

The Extended Fund Facility (EFF)-supported programme of government reforms, established with the intent of supporting government’s own reform priorities which aim to grow country’s own resources and meet its social and developmental needs, was approved in 2016. According to Dr Kvintradze, this 3-year programme, in amount of Rs 1.5 billion, has been performing relatively well.  At this moment 5th review is being conducted, and one more review remains to complete the program.

The EFF-supported program, which aims at regaining macro stability and resilience, comprises quantitative target reforms (increasing revenue, reduce deficit, increase reserves and reduce SOEs obligations), structural reforms (tax laws and administration, fiscal rules, debt strategy, inflation targeting) and transparency and accountability reforms strengthens economic governance (tax expenditures statements, automated systems for public finance).

She stated that all these reforms are going to outlive any kind of IMF support program and should lay foundation for more predictable and stable macroeconomic management framework going forward.

“EFF-supported program also aims at promoting inclusive growth and competitiveness. It will address many issues such as natural disaster mitigation and management. Most important aspect which needs to be tackled to unlock Sri Lanka’s growth potential is competitiveness,” according to Dr Kvintradze.

She further stated that the country has already implemented many reforms to make the tax system more stable and many of these reforms are currently underway.