Increasing the vehicle import surcharge by 50 percent is reportedly a breach of IMF conditions.

Mr. Evan Papageorgiou, the head of the International Monetary Fund (IMF) mission in Sri Lanka, states that the government's recent decision to increase the vehicle import surcharge by 50 percent is a violation of the agreements under the IMF's aid program for Sri Lanka. Speaking at a press conference yesterday (30), he stated that the IMF strongly believes the government will remove this additional tax imposition at the end of three months.

He also emphasized that the imposition of such import restrictions is not encouraged under the IMF's aid programs.

Sri Lankan authorities have informed the IMF Executive Board during the fifth and sixth reviews that this tax increase was implemented as a temporary measure to control the rapidly widening gap between the country's export earnings and import expenditures. Taking these facts into consideration, the Executive Board expects this 50 percent additional surcharge to be removed by August 15th. Furthermore, the current program must be successfully completed before discussions on a new funding program can begin, and two more reviews remain under the current framework.

The current funding facility program is scheduled to conclude in March next year, and the seventh review, which will formally assess Sri Lanka's progress, is planned for the end of this year. Mr. Papageorgiou stated that regardless of the final outcome of this program, the International Monetary Fund will always remain a trusted advisor to Sri Lanka, and the country can seek the IMF's assistance whenever needed.

The ongoing war situation in the Middle East region has put severe pressure on the Sri Lankan economy, creating high uncertainty within the country's economy. Due to rising energy prices, the country's inflation, which was 1.6 percent in February, has notably increased to 5.5 percent by May. Additionally, the mission chief pointed out that the arrival of foreign tourists and the process of building up gross foreign reserves have also slowed down.

In response to this economic situation, the Central Bank of Sri Lanka took steps to raise its policy interest rate by 1 percent and has also taken various measures to prevent broad risks that could affect the entire financial system. Furthermore, the government has implemented a relief package for vulnerable segments of the population in the face of the current situation. It is essential to continuously advance the country's economic reform agenda to stabilize the economic progress achieved so far and to enhance its resilience to external shocks.

An International Monetary Fund delegation was on an official visit to the country from June 24th until yesterday (30), during which several rounds of discussions were held with high-ranking authorities, including the President. Although this visit is not an official review, Sri Lanka's economic progress will be extensively examined during the seventh review, scheduled for the end of the year.