The International Monetary Fund Executive Board has completed the combined Fifth and Sixth Reviews of Sri Lanka’s reform program under the Extended Fund Facility (EFF), giving the country immediate access to approximately US$695 million in financing support.
According to the IMF, the latest approval provides:
- SDR 508 million (about US$695 million) in immediate funding
- Bringing total disbursements under the program to SDR 1.778 billion (around US$2.4 billion)
The 48-month EFF program, originally approved on March 20, 2023, amounts to:
- SDR 2.286 billion (around US$3 billion)
IMF’s Assessment of Sri Lanka’s Economy
According to Kenji Okamura, Sri Lanka’s reform program has remained on track despite recent shocks.
The IMF noted that reforms have helped Sri Lanka:
- Maintain economic resilience
- Respond to Cyclone Ditwah recovery needs
- Manage economic pressure linked to the Middle East conflict
However, the Fund warned that the Middle East crisis has significantly worsened Sri Lanka’s outlook.
Economic Outlook for 2026
The IMF projects:
- Economic growth slowing to 3% in 2026
- Higher oil prices increasing inflationary pressures
- Lower tourism earnings weakening the external sector
- Greater uncertainty due to the duration and intensity of regional conflicts
Fiscal Policy and Government Spending
The IMF said temporary fiscal easing in 2026 is appropriate because of recent shocks, noting government spending priorities include:
- Recovery from Cyclone Ditwah
- Temporary relief packages
- Reconstruction activities
However, from 2027 onward, authorities are expected to return to:
- A primary surplus target of 2.3% of GDP
- Compliance with spending ceilings
Areas Where Further Reforms Are Needed
The IMF stated additional work is required in:
- Public financial management reforms
- Public investment management
- Electricity sector reforms
- Revenue collection improvements
- Governance and anti-corruption measures
The Fund also emphasized:
- Continued focus on price stability by the Central Bank of Sri Lanka
- Greater exchange rate flexibility
- Gradual removal of balance-of-payments restrictions
- Structural reforms to improve long-term growth
Debt Situation
While acknowledging that debt restructuring is nearing completion, the IMF warned:
- Debt sustainability risks remain high
- Continued policy consistency remains essential
The latest IMF approval comes at a critical time for Sri Lanka as the country faces:
- Exchange rate pressures
- Rising energy costs
- Tourism uncertainties
- Reconstruction spending needs
- Global economic risks linked to regional conflicts
