The International Monetary Fund (IMF) says Sri Lanka’s economic reform programme has helped the country withstand the economic impact of the recent Middle East conflict, while stressing that continued reforms will be essential to sustain the recovery and ensure long-term economic stability.
In a statement issued following an IMF staff visit to Colombo from June 24 to 30, the Fund noted that the conflict had placed pressure on Sri Lanka’s economy by increasing inflation, slowing the growth of tourist arrivals, and reducing the pace of foreign reserve accumulation.
According to the IMF, headline inflation rose from 1.6 percent in February to 5.5 percent in May, mainly due to higher energy prices.
The Fund noted that the Central Bank of Sri Lanka responded by increasing policy interest rates by 100 basis points and introducing additional macroprudential measures to safeguard financial stability.
Meanwhile, the government introduced temporary relief measures, including subsidies for fuel, electricity, and fertilizer, as well as cash assistance for vulnerable households to help cushion the impact of rising living costs.
The IMF emphasized that Sri Lanka should continue implementing key economic reforms to preserve fiscal discipline and external stability. These include improving tax compliance, broadening the tax base, strengthening public financial management, and accelerating reforms of state-owned enterprises.
The Fund also underscored the importance of maintaining cost-reflective energy pricing, strengthening social protection programmes, improving debt management, and ensuring that monetary policy remains prudent and guided by economic data.
In addition, the IMF called for continued governance reforms, trade liberalization, labour market reforms, and improvements to the business environment to attract greater investment, generate employment, and reduce poverty.
The IMF said Sri Lanka’s progress under the Extended Fund Facility (EFF) programme will be formally assessed during the Seventh Review Mission, which is expected to take place later this year. The dates for the review will be announced in due course.
The IMF delegation, led by Mission Chief Evan Papageorgiou, met with President and Minister of Finance Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, Central Bank Governor Dr. P. Nandalal Weerasinghe, and other senior government officials during the visit.
