IMF hails post-pandemic recovery, warns on debt and calls for stronger fiscal reforms

The International Monetary Fund (IMF), through its Research Department and regional country teams, has praised the nation’s post-pandemic recovery as “resilient,” while warning that rising public debt, persistent inflation, and widening fiscal gaps could threaten future growth. In its latest Article IV Consultation report, the Fund says the economy continues to perform strongly, driven by domestic demand, public investment, and tourism recovery. However, it stresses that tighter fiscal management and deeper reforms are needed to secure stability and inclusive development.

Growth Driven by Strong Demand and Investment

According to IMF economists, the economy is expected to grow by around 4 to 5 percent this year, supported by solid household spending, higher remittances, and improved energy availability. This performance, the report notes, is remarkable given the global slowdown, volatile commodity prices, and tighter financial conditions.

Inflation has eased in recent months, helped by falling food and fuel costs and a firm monetary policy stance. Yet, core inflation remains elevated, as domestic supply bottlenecks and high import prices continue to weigh on consumers. The IMF expects inflation to gradually return to target levels if current monetary policies are maintained.

Fiscal Deficit Remains a Major Concern

While acknowledging that government spending has helped protect vulnerable households and sustain growth, the IMF warns that fiscal imbalances are deepening. The fiscal deficit, estimated at around 5 percent of GDP, is considered too high to be sustainable in the medium term.

The report recommends a gradual fiscal consolidation strategy that focuses on improving tax collection, broadening the revenue base, and phasing out inefficient subsidies. It calls for stronger oversight of state-owned enterprises (SOEs), some of which continue to accumulate financial losses that risk becoming public liabilities. According to the Fund, fiscal reforms must preserve social and development spending while improving the efficiency and transparency of public investment.

Central Bank Credited for Containing Inflation

The IMF commends the central bank’s decisive action in controlling inflation through interest rate hikes and tighter liquidity management. These measures have helped anchor expectations but also slowed private-sector credit growth. The report urges policymakers to remain data-driven, keeping inflation under control while supporting economic recovery if global conditions worsen.

The financial system is described as broadly stable, though some risks persist in sectors like construction and small business lending. The IMF recommends continued strengthening of bank supervision, the adoption of risk-based capital requirements, and the gradual alignment with Basel III standards to safeguard financial stability.

External Balances Improve but Vulnerabilities Persist

On the external front, the IMF finds that the current account deficit has narrowed, thanks to strong export performance, higher tourism earnings, and resilient remittances. Imports have moderated, providing relief to the balance of payments.

However, the report cautions that the economy remains exposed to global price fluctuations, particularly in energy and food. The exchange-rate regime is considered appropriate, but greater flexibility is advised to absorb external shocks. The IMF notes that foreign reserves are now adequate, covering several months of imports, but rebuilding these buffers further through prudent external borrowing and export diversification remains essential.

Reforms and Climate Action Key to Sustainable Growth

Beyond short-term stability, the IMF emphasizes the need for structural reforms to boost competitiveness and attract investment. It highlights progress in digitalization and governance but warns that labor market rigidity, regulatory bottlenecks, and weak contract enforcement still deter private investment.

The Fund calls for reforms that improve the business climate, expand vocational training, and increase participation of women and youth in the labor force. It also underscores the importance of renewable energy investment to reduce dependence on imported fuels and promote green growth.

On climate and social policies, the IMF praises the government’s commitment to net-zero goals but says implementation needs to accelerate. It urges scaling up concessional and private climate finance, improving climate data systems, and offering fiscal incentives for green innovation. Meanwhile, social protection programs should be better targeted to reach vulnerable populations, with greater investments in education and digital literacy to narrow inequality.

Despite global uncertainty, the IMF’s outlook remains cautiously optimistic. It projects that with disciplined fiscal management, prudent monetary policy, and sustained structural reforms, the economy can maintain steady growth while building resilience to external shocks. “The country has demonstrated remarkable resilience in a challenging global environment,” the report concludes. “The next phase of progress will depend on credible reforms, sound governance, and sustained investment in people and sustainability.”