- IMF staff and the Sri Lankan authorities have reached staff-level agreement on economic policies to conclude the Seventh Review of Sri Lanka’s reform program supported by the IMF’s Extended Fund Facility (EFF). Once the review is approved by the IMF Executive Board, Sri Lanka will have access to about US$345 million in financing.
- Sri Lanka’s economy continues to show resilience amid successive shocks as a result of the economic reforms undertaken by the authorities. However, risks remain tilted to the downside stemming from the uncertainty about the intensity and duration of the war in the Middle East.
- Safeguarding macroeconomic stability requires continuing with prudent policies and bold reforms to protect hard-won gains and deliver strong and inclusive growth.
Washington, DC: After constructive discussions, IMF Mission Chief for Sri Lanka Evan Papageorgiou issued the following statement:
“IMF staff and the Sri Lankan authorities have reached staff-level agreement on the Seventh Review under the 4-year Extended Fund Facility (EFF) arrangement and concluded the 2026 Article IV Consultation discussions. The EFF arrangement 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 presentation by the Minister of Finance to Parliament of the 2027 Budget, in line with program parameters and (ii) the completion of the financing assurances review to confirm multilateral partners’ financing contributions and assess adequate progress with debt restructuring.
“Upon completion of the Executive Board review, Sri Lanka would have access to SDR 254 million (about US$345 million), bringing the total IMF financial support disbursed under this arrangement to SDR 2.032 billion (about US$2.7 billion).
“Sri Lanka’s economy has proved remarkably resilient to successive shocks. Economic activity expanded by 4.2 percent in 2026Q2, marking eleven consecutive quarters of strong growth. At 8 percent y/y in September, headline inflation remains in single digits. Gross official reserves have increased, reaching US$6.9 billion at end-August 2026. Banks remain well capitalized and profitable. Fiscal outturn in 2026H1 was strong and debt restructuring is largely completed.
“However, Sri Lanka continues to face downside risks from uncertainty over the duration and intensity of the Middle East war, global trade policy, and the impact of El Niño. Safeguarding macroeconomic stability in a shock-prone environment requires continuing with prudent policies and bold reforms to protect the hard-won gains of the program.
“In response to a protracted Middle East war, the government should allow domestic fuel prices to adjust in line with international fuel price movements and preserve cost-recovery energy pricing, while protecting the vulnerable. Support should be well-targeted, on budget, carefully costed, and time-bound to avoid jeopardizing fiscal and debt sustainability, eroding confidence, and reversing the recovery. Poverty-targeted cash transfers should be leveraged to shield the most vulnerable. Successive shocks highlight the need to intensify efforts to improve the coverage, targeting, and responsiveness of social safety nets. In the event of stronger second-round inflationary effects from the Middle East war, monetary policy should stand ready to tighten to mitigate the risk of expectations becoming de-anchored.
