By Mary Swire | Tax-News
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The IMF mission said that overall economic conditions were improving, and the economy was likely to show strong growth this year. End-June performance criteria on domestic budget borrowing, reserve money, and net reserves had been met. With budget revenues increasing and expenditure restraint continuing, fiscal performance so far remained consistent with achieving the government’s full-year deficit target of 8% of GDP. Financial sector reforms continued to go forward in line with the program.
However the IMF thought that significant near- and medium-term macroeconomic challenges would need to be addressed, if Sri Lanka was to take full advantage of the current favorable environment. The IMF said:
“First, a fundamental tax reform is needed, and planned, to simplify the existing system, broaden the tax base (including by restricting concessions), spread the tax burden more equitably, and support economic growth, all while boosting the revenue-to-GDP ratio."
"The resulting fiscal space could allow increased public capital spending on reconstruction and infrastructure as well as social spending to support the vulnerable, but it is clear that the country’s large investment needs cannot be met through the government budget alone."
"Private-sector investment will need to play a critical role. To foster this investment, policies will need to be geared toward preserving macroeconomic stability, ensuring external competitiveness, facilitating capital market development, and improving the investment climate, all of which would lay the basis for higher sustainable growth in a post-war environment."
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