IMF gives fresh thumbs up for SL

IMF Senior Mission Chief Peter Breuer (centre) flanked by Deputy Mission Chief Katsiaryna Svirydzenka (left) and Resident Representative Sarwat Jahan at the media briefing yesterday
  • Staff-level agreement on 2nd review reached between IMF and Sri Lanka
  • IMF’s Executive Board final approval and release of $ 337 m tranche bringing total to near $ 1 b require implementation of prior actions by SL and completion of financing assurances review, confirming multilateral partners’ financing contributions and assessing adequate progress with debt restructuring
  • IMF Staff says authorities are making good progress in implementing ambitious reform agenda under EFF with commendable outcomes
  • Program performance strong, with all quantitative performance criteria and indicative targets for end-December 2023 met except for on social spending
  • Most structural benchmarks due before end-February 2024 either met or implemented with delay
  • High-frequency economic indicators point to continued pick-up in manufacturing, construction, and services
  • Stresses sustaining reform momentum critical to put economy on path towards lasting recovery and stable and inclusive economic growth
  • Reiterates need for SL to conclude external debt restructure in timely manner
The International Monetary Fund (IMF) said yesterday a staff-level agreement on economic policies to conclude the second review of the 4-year EFF-supported program has been reached with Sri Lanka enhancing the prospect to receive a fresh $ 337 million in financing bringing the total to

$ 1 billion since March last year.

Completion of the review by the IMF’s Executive Board requires: (i) the implementation by the authorities of prior actions; and (ii) the completion of financing assurances review, which will focus on confirming multilateral partners’ committed financing contributions and whether adequate progress has been made with the debt restructuring to give confidence that the restructuring will be concluded in a timely manner and in line with the program’s debt targets.

IMF staff, during their visit which began on 6 March, also held the 2024 Article IV Consultation with Sri Lanka. The EFF entails $ 3 billion support.

It said Sri Lanka’s macroeconomic policy reforms are starting to bear fruit.

IMF...

“Sustaining the reform momentum and addressing governance weaknesses and corruption vulnerabilities are critical to put the economy on a path towards lasting recovery and stable and inclusive growth,” it added.

After constructive discussions in Colombo, IMF Senior Mission Chief Peter Breuer and Deputy Mission Chief Katsiaryna Svirydzenka issued the following statement:

The authorities are making good progress in implementing an ambitious reform agenda under the EFF with commendable outcomes, including rapid disinflation, robust reserve accumulation, and initial signs of economic growth while preserving the stability of the financial system. Public finances have strengthened following substantial fiscal reforms. Program performance was strong, with all quantitative performance criteria and indicative targets for end-December 2023 met except for the indicative target on social spending. Most structural benchmarks due before end-February 2024 were either met or implemented with delay. Reforms in some areas are still ongoing.

The economic situation is gradually improving. Growth turned positive after six consecutive quarters of contraction, registering 1.6% and 4.5% y-o-y growth in the third and fourth quarters of 2023 respectively. High-frequency economic indicators point to a continued pick-up in manufacturing, construction, and services. Inflation has come down from a peak of 70% in September 2022 to 5.9% in February 2024. Gross official reserves increased to $ 4.5 billion at end-February 2024 with sizable foreign exchange purchases by the central bank.

Sustaining the reform momentum is critical to put the economy on a path towards lasting recovery and stable and inclusive economic growth. We welcome the authorities’ commitment to fiscal reforms. Continued progress towards the introduction of the property tax is critical, together with revenue measures to meet the revenue mobilisation goals in 2025 and beyond. Revenue administration and anti-corruption efforts to boost tax collections are also key. Maintaining cost recovery in fuel and electricity pricing will help minimise fiscal risks arising from State-owned enterprises.

While inflation has decelerated faster than expected, continued monitoring is warranted to help anchor inflationary pressures and support macroeconomic stability. Against ongoing external uncertainty, it remains important to continue to rebuild external buffers through strong reserves accumulation.

Sri Lanka’s Agreements in principle with the Official Creditor Committee and Export-Import Bank of China on debt treatments consistent with program parameters were important milestones putting Sri Lanka’s debt on the path towards sustainability. The critical next steps are to finalise the agreements with the official creditors and reach agreements in principle with the main external private creditors in line with program parameters in a timely manner. This should help restore Sri Lanka’s debt sustainability over the medium term.

The authorities’ recently published Action Plan to implement the key recommendations of the Governance Diagnostic Report is a welcome step. Sustained efforts to implement these reforms will be essential for addressing corruption risks, rebuilding economic confidence, and making growth more robust and inclusive.

The IMF mission team met with tea plantation workers in Nuwara Eliya and learned first-hand about some of the challenges Sri Lanka’s most vulnerable face. Continued efforts to improve targeting, adequacy, and coverage of social safety nets, particularly Aswesuma, remain critical to protect the poor and the vulnerable.

The IMF team held meetings with President and Finance Minister Ranil Wickremesinghe, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Power and Energy Minister Kanchana Wijesekera, State Minister Shehan Semasinghe, Chief of Staff to the President Sagala Ratnayaka, Secretary to the Treasury K.M. Mahinda Siriwardana, and other senior Government and CBSL officials. The team also met with Parliamentarians, representatives from the private sector, civil society organisations, and development partners. We would like to thank the authorities for the excellent collaboration. IMF gives fresh thumbs up for SL | Daily FT
Read More........

NZ is in recession – so far there are few signs the government has a plan to stimulate and grow the economy

Grant Duncan, City, University of London: If you live in New Zealand and you’re feeling poorer, you’re not imagining it. Stats NZ has revealed the economy was in recession over the second half of last year. GDP fell in the September and December quarters by –0.3% and –0.1% respectively.

Taking into account the record high levels of immigration, Westpac’s most recent economic bulletin estimated this may equate to GDP per person having fallen almost 4% from its peak in mid-2022.

What does this mean politically, then, and what can the coalition do about it? Because the statistics are retrospective, the new government can blame the old one – but that won’t satisfy many people for much longer.

The National-led government hasn’t enjoyed a post-election honeymoon. According to an IPSOS poll in late February, New Zealanders rated the coalition’s performance at 4.6 out of ten – on par with the Labour government (4.7) just before the general election in October 2023.

Internal contradictions

The recession also means reduced tax revenues. Logically, something will have to give when Finance Minister Nicola Willis puts the final touches on her first budget, to be delivered on May 30.

Tax cuts – which National has promised – could exacerbate inflation or delay its decline. Although inflation has been coming down, it’s still some way from the target 1–3% range. The December figure was 4.7%.

If income is weaker than expected, tax cuts would be paid for by deeper spending cuts, revenues raised elsewhere, or borrowing. The last option lacks credibility, given the way proposed unfunded tax cuts hastened the political demise of the then UK prime minister, Liz Truss, in 2022.

Luxon and Willis have some difficult fiscal decisions to make. And there’s pressure, especially from NZ First leader Winston Peters, to honour the coalition agreements. Peters has already made life difficult for Willis by repeating one published estimate of a potential NZ$5.6 billion “gap” between National’s election promises and “current forecasts”.

Missing innovation and skills policies

In the meantime, people are struggling to make ends meet and appear to lack confidence in the new government.

According to the IPSOS poll, the National Party has often been seen as more competent than other parties to deal with the economic problems. But National is in coalition with two other partners, both of which expect to see their own policies implemented.

There are incentives for all three parties, however, to convince at least most people they can achieve three closely related aims:

  • deliver a prudent budget
  • improve economic efficiency and productivity
  • stimulate innovation and skills.

Judgment on the first point should be reserved until we see the budget.

On the second point, the government is passing a law that will allow fast-track consenting for approved projects. The government will also argue that reintroducing 90-day employment trials, for businesses with more than 20 staff, and repealing pay-equity law will help improve investment and hiring.

But the fast-track law is attracting criticism from environmental groups and legal experts for giving extraordinary powers to ministers. Trade unions strongly oppose the employment law changes.

On the final point, the government seems to have few ideas – least of all how to prepare for the coming wave of AI-driven change. Tertiary education and research and development would be priorities here, but there are no new policy initiatives around trades training and advanced research.

A lot riding on Budget 2024

In the meantime, the reinstatement of tax deductibility of interest payments on rental properties does nothing at all to contribute to fiscal prudence, productivity or innovation.

It simply benefits the owners of things that have already been built and sold. And it’s very unlikely to lead to lower rents, contrary to Christopher Luxon’s suggestion it would apply “downward pressure” for which renters would be grateful.

No government can literally “grow the economy” – regardless of the National Party’s pre-election hype. Economies grow as people produce more efficiently more of the things others are keen to pay for. A government’s actions and policies may either help or hinder the productivity of individuals, firms and the economy as a whole.

The present government’s economic credibility, and hence its political viability, are more seriously in question than would normally be the case so early in its first term.

There are things Luxon and his team can do to turn that around. But people want and need policies that will noticeably boost their material standard of living – sooner rather than later. A lot will depend on Budget 2024.The Conversation

Grant Duncan, Visiting Scholar in Politics, City, University of London

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read More........

U.S. Bank and Pagaya Technologies Forge Partnership to Broaden Personal Loan Accessibility

U.S. Bank has entered a partnership with Pagaya Technologies, aimed at enhancing access to personal loans for a wider range of clients.

Utilising Pagaya’s AI-powered credit decisioning capabilities, U.S. Bank can extend loans to individuals who may not meet traditional lending criteria. This collaboration allows U.S. Bank to offer responsible credit solutions to more customers, leveraging technology to assess eligibility beyond conventional measures such as credit score and debt-to-income ratio.

Now, when a U.S. Bank client applies for a personal loan that doesn’t meet its traditional requirements, Pagaya will complete a secondary review via its AI-powered credit decisioning capabilities. If the borrower is approved, U.S. Bank will originate the loan as well as service the clients over the life of the loan.

More than 2,000 clients have already benefited from this initiative, highlighting its potential to broaden financial opportunities for diverse borrowers.

“We know that we have many clients who don’t fall within our traditional credit parameters,” said Mike Shepard, head of consumer lending partnerships at U.S. Bank. “By expanding access to responsible credit solutions, we are giving clients access to funds when they need it the most, through their existing and trusted banking relationship with us.”Leslie Gillin, Pagaya’s chief growth officer, also commented: “We share U.S. Bank’s commitment to increasing access to life-changing financial products and services. With Pagaya’s integrated and seamlessly embedded lending technology, our lending partners can expand and deepen their client relationships to a more diverse group of borrowers. ”U.S. Bank and Pagaya Technologies Forge Partnership to Broaden Personal Loan Accessibility
Read More........