The International Monetary Fund (IMF) and the Sri Lankan authorities have reached a staff-level agreement on economic policies to conclude the Fifth 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$347 million in financing.
The IMF said the economic reforms implemented by the Sri Lankan authorities have continued to support the recovery, with inflation progressing to target, reserves accumulating, and real GDP growth and revenue mobilization outperforming expectations.
“Performance under the program has been strong”, the IMF noted.
It noted that advancing reforms is key to ensuring macroeconomic stability, anchoring the recovery, and equipping Sri Lanka to better withstand external shocks amid an uncertain global environment.
An International Monetary Fund (IMF) mission team led by Evan Papageorgiou visited Sri Lanka from September 24 to October 9, 2025, to discuss recent macroeconomic developments and progress in implementing economic and financial policies under the Extended Fund Facility (EFF) arrangement.
Accordingly, Mission Chief Papageorgiou issued the following statement:
“IMF staff and the Sri Lankan authorities have reached staff-level agreement on the Fifth Review under the 4-year Extended Fund Facility (EFF) arrangement. The 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) Parliamentary approval of the 2026 Appropriation Bill 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$347 million), bringing the total IMF financial support disbursed under the arrangement to SDR 1,524 million (about US$2.04 billion).
“Sri Lanka’s ambitious reform agenda continues to deliver commendable outcomes. The economy grew by 4.8 percent y/y in 2025H1 and we expect growth to remain solid in 2025. Inflation has returned to positive territory and in September prices rose by 1.5 percent y/y. Gross official reserves reached US$6.1 billion at end-September 2025. Fiscal performance in 2025H1 has been strong, primarily supported by taxes on motor vehicle imports. Debt restructuring is nearing completion.
“Program performance is strong, underpinned by good fiscal revenue outcomes and improvements in external resilience. The reform momentum should be sustained to safeguard macroeconomic stability and enhance Sri Lanka’s resilience to shocks. This is particularly important given heightened downside risks to the economy from persistent trade policy uncertainty and geopolitical tensions.
“The 2026 Budget should be in line with program parameters to continue building fiscal space on the back of strong revenue measures and prudent spending execution. This requires sustained efforts to improve tax compliance, broaden the tax base, and tackle revenue leakages by strengthening the tax exemption frameworks. Enhancing public financial management, avoiding the reemergence of expenditure arrears, and promoting high-quality and efficient public expenditure, including by addressing capital spending under-execution, will contribute to safeguarding fiscal discipline and transparency.
“At the same time, it is instrumental to maintain cost-recovery energy pricing, strengthen the governance of state-owned enterprises (SOEs), and resolve their legacy debts to ensure financial viability and minimize fiscal risks. Upcoming bills on public-private partnerships, SOEs, public procurement, and public asset management should be consistent with the Public Financial Management Act and best practices.
“Protecting the poor and vulnerable should remain a priority. There is scope to strengthen the design of the welfare benefit payment scheme to improve the targeting, adequacy, and coverage of social spending.
“Accelerating the finalization of bilateral debt agreements with the remaining official and commercial creditors is key to restoring debt sustainability and improving investor confidence. A swift operationalization of the Public Debt Management Office will be a key step towards prudent debt management practices.
“It is important for monetary policy to remain data-driven and to ensure price stability. Central bank independence should continue to be safeguarded, including by continuing to refrain from monetary financing of the budget. Efforts should continue to rebuild external buffers through reserve accumulation to adequate levels, while allowing for exchange rate flexibility. Resolving non-performing loans, strengthening governance and oversight of state-owned banks, and improving the insolvency and resolution frameworks are important to foster credit growth and safeguard financial sector stability.
“It is crucial to speed up the implementation of governance reforms outlined in the government’s action plan. Advancing procurement reforms, strengthening the AML/CFT framework, prioritizing anti-corruption measures in revenue administration, including digitalization, and implementation of electronic asset declarations will contribute to reducing corruption vulnerabilities. Recruitment at the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) should be accelerated and CIABOC’s independence safeguarded in line with the Anti-Corruption Act. Structural reforms will be key to lifting Sri Lanka’s potential growth.
“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 Minister of Industry Mr. Sunil Handunnetti, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Secretary to the Treasury Dr. Harshana Suriyapperuma, Senior Economic Advisor to the President Mr. Duminda Hulangamuwa, Chief Advisor to the President on Digital Economy Dr. Hans Wijayasuriya, Governor of Central Province Prof. Sarath Abayakon, and other senior government and CBSL officials. The IMF team also met with parliamentarians, representatives from the private sector, civil society organizations, and development partners.
“We would like to thank the authorities for the excellent collaboration during the mission, including while visiting the Central and Uva provinces. We reaffirm our commitment to support Sri Lanka achieve strong, sustainable growth.”
