Sri Lanka Avoids Penalties After IMF Finds Reporting Errors

COLOMBO (News 1st); The Executive Board of the International Monetary Fund (IMF) has reviewed a series of noncomplying purchases made by Sri Lanka under its 2023 Extended Arrangement under the Extended Fund Facility (EFF), following the discovery of inaccurate reporting related to expenditure arrears.

Despite the breach, the IMF has decided to grant waivers and not pursue further action, citing corrective measures and a commitment to reform by Sri Lankan authorities.

In a statement issued after the Board’s discussion, Kenji Okamura, Deputy Managing Director and Acting Chair, acknowledged that the inaccuracies stemmed from weaknesses in the timely reporting of arrears by line ministries to the Ministry of Finance.

He further noted that the misreporting was inadvertent and largely due to a misunderstanding of the definition of “arrears” as outlined in the program’s Technical Memorandum of Understanding.

The noncomplying purchases arose as a result of the provision of inaccurate information by the authorities on the stock of expenditure arrears at the first, second, and third reviews under the EFF.

However, the IMF emphasized that the Sri Lankan authorities have taken corrective actions and committed to accommodating arrears repayments within the existing fiscal framework. These steps, along with the implementation of a new Public Financial Management (PFM) law, are expected to strengthen reporting mechanisms and reduce the risk of future discrepancies.

“The Executive Board positively considered the authorities’ corrective actions, the fact that arrears repayments will be accommodated within the existing fiscal envelope, and the authorities’ commitment to improving public financial management procedures,” Okamura stated.

In light of these developments, the IMF Board agreed to grant waivers for the nonobservance of the quantitative performance criterion that led to the noncomplying purchases.

Additionally, the Board decided not to require further action regarding the breach of obligations under Article VIII, Section 5 of the IMF’s Articles of Agreement.