Sri Lanka should stamp out corruption and substantially raise taxes to rescue its economy, the International Monetary Fund said Thursday after bailout talks with the bankrupt island nation.
Representatives from the global lender of last resort have just concluded a 10-day visit to the capital Colombo to map out a resolution to the South Asian country's unprecedented economic crisis.
Their meetings follow months of lengthy blackouts and days-long queues for petrol as a financial crunch leaves Sri Lanka without the funds to meet its energy needs.
But the IMF said more work was needed to set the nation's finances right and repair its runaway fiscal deficit before a deal could be struck on a funding arrangement to address its balance of payments crisis.
"Given the low level of revenues, far-reaching tax reforms are urgently needed," the lender said in a statement.
Sri Lanka needed to "reduce corruption vulnerabilities", contain spiralling inflation and bring an end to costly energy subsidies that had long been a drain on the government budget without hurting more vulnerable citizens, the statement added.
"The authorities have made considerable progress in formulating their economic reform program and we are looking forward to continuing the dialogue with them," it said.
Sri Lanka has already reversed drastic 2019 tax cuts introduced by President Gotabaya Rajapaksa which have been blamed for precipitating the economic crisis.
It has also scaled back energy subsidies, with the cost of fuel rising by up to 400 percent this year, and in April the government defaulted on its $51 billion foreign debt.
Sri Lanka's 22 million people have laboured through chronic shortages of food, pharmaceuticals and other essentials this year, and already severe hardships have worsened in recent weeks.
The island nation is almost completely without petrol and the government has shut down non-essential public services in an effort to conserve fuel.
The UN estimates that about 80 percent of the public are skipping meals to cope with food shortages and record prices.
Protests have demanded Rajapaksa's resignation for the government's mismanagement of the crisis, but the president has so far refused to stand down.