The International Monetary Fund (IMF) says Sri Lanka’s economic reform programme has helped the country withstand the impact of the Middle East conflict, while warning that maintaining reform momentum will be essential to safeguard the recovery and ensure long-term economic stability.
In a statement issued at the conclusion of an IMF staff visit to Colombo from June 24 to 30, the Fund said the conflict had affected Sri Lanka’s economy by increasing inflation, slowing tourism growth and reducing the pace of foreign reserve accumulation.
The IMF noted that headline inflation rose from 1.6% in February to 5.5% in May, following increases in energy prices.
According to the Fund, the Central Bank of Sri Lanka responded by raising policy interest rates by 100 basis points and introducing macroprudential measures, while the Government implemented temporary relief measures, including subsidies for fuel, electricity and fertilizer, as well as cash transfers for vulnerable households.
The IMF said Sri Lanka should continue implementing key reforms to maintain fiscal and external sustainability. These include improving tax compliance, broadening the tax base, strengthening public financial management and accelerating reforms of state-owned enterprises.
It also emphasised the importance of maintaining cost-recovery energy pricing, strengthening social safety nets, improving debt management and ensuring that monetary policy remains prudent and data-driven.
The Fund further called for continued governance reforms, trade liberalisation, labour market reforms and improvements to the business environment to attract 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 of the mission will be announced in due course.
The IMF staff delegation, led by Evan Papageorgiou, met President and Finance Minister Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, Central Bank Governor Dr. P. Nandalal Weerasinghe, and other senior government officials during the visit.