An International Monetary Fund (IMF) team, led by Evan Papageorgiou, visited Colombo from April 3 to 11, 2025, to conduct discussions on Sri Lanka’s economic performance and policies underpinning the Fourth Review under the IMF Extended Fund Facility (EFF) arrangement.
In a statement, the IMF highlighted the productive discussions with Sri Lankan authorities and outlined the following key points:
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External Shocks and Economic Uncertainty: Recent global external shocks and evolving developments have created uncertainty for Sri Lanka’s economy, which is still recovering from its own crisis.
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IMF Mission Chief’s Statement: More time is needed to assess the impact of global shocks on Sri Lanka’s IMF-supported program.
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Commitment to Program Objectives: Sri Lanka’s continued commitment to the program ensures policy continuity and strong implementation. Sustaining reform momentum remains critical.
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Revenue Mobilization and Budget Execution: The IMF stressed that sustained revenue mobilization and prudent budget execution are crucial to preserving limited fiscal space amid global uncertainty.
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Boosting Tax Compliance: Improving tax compliance, including reinstating an efficient VAT refund mechanism, will help generate revenue gains without introducing new taxes.
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Reducing Fiscal Revenue Leakages: Avoiding new tax exemptions will reduce fiscal revenue leakages and minimize corruption risks, helping to build necessary fiscal buffers.
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Electricity Pricing and Fiscal Risks: Restoring cost recovery in electricity pricing is important to minimize fiscal risks from state-owned enterprises.
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Protecting the Vulnerable: The IMF emphasized the importance of protecting the poor and vulnerable with well-targeted, time-bound fiscal support.
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Inflation Monitoring: Ongoing monitoring of inflation is necessary to ensure sustained price stability and macroeconomic stability.
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Ongoing Discussions: Discussions are continuing with Sri Lankan authorities on economic performance and policies, including the Fourth Review under the EFF arrangement.
Full Statement:
Evan Papageorgiou, the IMF Mission Chief, issued a statement summarizing the outcomes of the mission:
“Sri Lanka’s ambitious reform agenda, supported by the IMF Extended Fund Facility (EFF), continues to deliver commendable outcomes. The post-crisis growth rebound of 5% in 2024 is impressive. Inflation has declined significantly, reaching -2.6% by the end of March 2025. Gross official reserves increased to US$6.5 billion at the end of March 2025, with substantial foreign exchange purchases by the central bank. Substantial fiscal reforms have strengthened public finances.
“The recent external shock and evolving global developments are creating uncertainty for Sri Lanka’s economy, which is still recovering from its own crisis. More time is needed to assess the impact of the global shock and determine how it can be addressed within the framework of Sri Lanka’s IMF-supported program.
“The government’s sustained commitment to the program ensures policy continuity, and program implementation remains strong. Moving forward, it is critical to sustain the reform momentum to safeguard the hard-won gains and put the economy on a path toward lasting macroeconomic stability and inclusive growth.
“Amid increased global uncertainty, sustained revenue mobilization efforts and prudent budget execution in line with Budget 2025 are essential to preserve limited fiscal space. Improving tax compliance, including reinstating an efficient VAT refund mechanism, will help generate revenue without resorting to additional tax measures. Avoiding new tax exemptions will reduce fiscal revenue leakages, curb corruption risks, and help build fiscal buffers, including for social spending to support the most vulnerable.
“The government has an important responsibility to protect the poor and vulnerable during this uncertain time. Efforts must be redoubled to improve the targeting, adequacy, and coverage of social safety nets. Fiscal support needs to be well-targeted, time-bound, and within the existing budget constraints.
“While inflation remains low, continued monitoring is necessary to ensure price stability and support macroeconomic stability. In light of ongoing global uncertainty, rebuilding external buffers through reserves accumulation remains a priority.
“Discussions are ongoing, and the authorities are encouraged to continue progressing on key reforms, including restoring cost-recovery electricity pricing, strengthening the tax exemptions framework, and other important structural reforms.
“The IMF team held meetings with His Excellency President and Finance Minister Anura Kumara Dissanayake, Honorable Prime Minister Dr. Harini Amarasuriya, Honorable Labor Minister and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando, Honorable Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Secretary to the Treasury Mr. K M Mahinda Siriwardana, Senior Economic Advisor to the President Duminda Hulangamuwa, and other senior government and CBSL officials. The team also met with parliamentarians, representatives from the private sector, civil society organizations, and development partners.
“We would like to thank the authorities for their excellent collaboration during the mission. Discussions are continuing, with the goal of reaching a staff-level agreement in the near term, which will pave the way for the timely completion of the fourth review. We reaffirm our commitment to support Sri Lanka during this uncertain time.”
