• Opposition candidates’ proposed changes face IMF resistance
• Limited fiscal space for new government’s election promises

The International Monetary Fund (IMF) would not agree to changes in key parameters of Sri Lanka’s programme such as primary surplus and debt-to-GDP ratio, as proposed by opposition presidential candidates, Bloomberg Intelligence said.

Accordingly, Bloomberg Intelligence said that the opposition presidential candidates are proposing to renegotiate the IMF programme to make it less austere where the IMF is unlikely to agree to changes in key parameters.

“We think that the IMF won’t agree to change key parameters such as primary surplus target and the debt-to-GDP ratio. They are the basis of already-agreed debt-restructuring agreements with dollar bondholders and bilateral creditors,” it said.

It said that the IMF programme will likely leave the new government with a limited fiscal space to implement its election promises — the cost of which cannot exceed 0.4% of GDP according to their estimates.

Moreover, Bloomberg Intelligence said that the government has raised corporate, income and value-added tax rates significantly to fulfil the IMF loan terms since 2022 and based on revenue collections data for the first half of 2024, they estimate revenues this year will likely be 14.6% of GDP — higher than the Fund’s revised estimate of 13.5%.

Also, it said that collections last year also surpassed the fund’s estimate by around 1 percentage point of GDP.

Further, it said that Sri Lanka is considering lifting import bans on all vehicles soon. Restrictions on some commercial vehicles were already lifted in August. The IMF estimates this would increase revenues by 0.8% of GDP next year.

“Therefore, revenues should rise to 15.4% of GDP next year, assuming no other tax hike is implemented. The IMF wants a revenues-to-GDP ratio of 15% next year,” Bloomberg Intelligence said.