The International Monetary Fund (IMF) staff and the Sri Lankan authorities have reached staff-level agreement on economic policies to conclude the Fourth Review of Sri Lanka’s reform program supported by the IMF’s Extended Fund Facility.
Once the review is approved by the IMF Executive Board, Sri Lanka will have access to about US$344 million in financing.
The IMF says that program performance remains strong overall and that economic growth is rebounding. Revenue mobilization, reserve accumulation, and structural reforms are advancing as envisaged while debt restructuring is nearly complete. Importantly, the government remains committed to program objectives.
However, global trade policy uncertainty poses significant downside risks to Sri Lanka’s economy, it said, adding that if these materialize, authorities and staff will work together to assess the impact and formulate policy responses within the contours of the IMF-supported program.
After constructive discussions in Colombo and during the International Monetary Fund (IMF) and World Bank Spring Meetings in Washington DC, IMF Mission Chief for Sri Lanka Evan Papageorgiou issued the following statement:
“IMF staff and the Sri Lankan authorities have reached a staff-level agreement on the Fourth Review of Sri Lanka’s reform program supported by the IMF’s 48-month Extended Fund Facility (EFF) arrangement. The EFF was approved by the IMF Executive Board for a total amount of SDR 2.3 billion (about US$3 billion) on March 20, 2023.
“The staff-level agreement is subject to IMF Executive Board approval, contingent on: (i) the implementation of prior actions relating to restoring electricity cost-recovery pricing and ensuring proper function of the automatic electricity price adjustment mechanism; and (ii) the completion of financing assurances review, which will focus on confirming multilateral partners’ committed financing contributions and adequate debt restructuring progress.
“Upon completion of the Executive Board review, Sri Lanka would have access to SDR254 million (about US$344 million), bringing the total IMF financial support disbursed under the arrangement to SDR1,270 million (about US$1,722 million).
“Sri Lanka’s ambitious reform agenda continues to deliver commendable outcomes. The post-crisis growth rebound of 5 percent in 2024 is remarkable. Revenue mobilization reforms had improved revenue-to-GDP ratio to 13.5 percent in 2024, from 8.2 percent in 2022. Gross official reserves reached US$6.5 billion at end-March 2025 given sizeable foreign exchange purchases by the central bank. Substantial fiscal reforms have strengthened public finances. Sri Lanka’s debt restructuring is nearly complete.
“Program performance remains strong overall. Based on preliminary data, most end-March quantitative targets for which data is available were met. Most structural benchmarks due by end-April were either met or implemented with delay. However, the continuous structural benchmark on cost-recovery electricity pricing remains not met. Inflation remains below the Monetary Policy Consultation target band.
“The recent external shock and evolving developments create significant uncertainty for the Sri Lankan economy, which is still recovering from its own economic crisis.
“Against this global uncertainty, sustained revenue mobilization efforts and prudent budget execution remain critical to preserve the limited fiscal space, to allow appropriate responses if shocks materialize. Restoring cost-recovery electricity pricing is essential to minimize fiscal risks and enable appropriate electricity infrastructure investments. The tax exemption framework should be well designed to reduce fiscal costs and corruption risks, while enabling growth. Reforms to boost tax compliance are important to deliver revenue gains without resorting to additional tax measures.
“Similarly, it remains critical to continue rebuilding external buffers through reserves accumulation, to allow appropriate responses if shocks materialize. Inflationary pressures remain contained and banks are well capitalized. However, continued monitoring is warranted to ensure sustained price and financial stability.
“The government has an important responsibility to protect the poor and vulnerable at this uncertain time. It is important to continue efforts to improve targeting, adequacy, and coverage of social safety nets. Fiscal support needs to be well-targeted, time-bound, and within the existing budget envelope.
“The new government’s sustained commitment to program objectives has enhanced confidence and ensures policy continuity. Going forward, sustaining reform momentum including by reducing corruption vulnerabilities, is critical to safeguard the hard-won gains, durably restore macroeconomic and debt sustainability, and unlock robust and inclusive growth.
“The IMF team held meetings in Washington DC with the 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, and other senior officials.
“We would like to thank the authorities for the excellent discussions and strong collaboration.”
