Sri Lanka is moving swiftly to respond to a significant economic challenge after the United States imposed a steep 44% retaliatory tariff on Sri Lankan exports, impacting nearly US$3 billion worth of goods—especially in key industries such as apparel and textiles. The sudden and unilateral measure has triggered both economic concern and diplomatic engagement, with the US urging Sri Lanka to address its trade deficit more effectively.
In reaction, the Sri Lankan government has set up a special committee to review and potentially revise the existing tariff system. This development emerged during ongoing discussions with the International Monetary Fund (IMF), which are focused on evaluating the broader impact of US trade policies on Sri Lanka’s fragile economy.
President Anura Kumara Dissanayake, along with senior IMF officials, participated in a high-level meeting on April 7 at the Presidential Secretariat. The talks reviewed progress on the fourth tranche of Sri Lanka’s Extended Fund Facility (EFF), which supports a larger economic reform strategy aimed at stabilizing the country’s finances.
The IMF team was led by Sanjaya Panth, Deputy Director of the Asia and Pacific Department, and included Evan Papageorgiou, the newly appointed Mission Chief. Top officials from Sri Lanka’s Ministry of Finance, Central Bank, and Presidential Secretariat were also present.
Key discussions revolved around structural reforms, fiscal policy, tax compliance, and strategies to mitigate the fallout from the US tariffs. The IMF highlighted the urgency of continuing reform momentum to ensure macroeconomic stability and long-term debt sustainability.
To meet its 2025 revenue goals, particularly the target of achieving 13.9% of GDP in tax revenue, the IMF has advised against introducing new tax exemptions. Instead, the focus should be on improving tax compliance to generate an additional 1.6% in gross revenue.
Sri Lanka recently passed the third EFF review, securing a US$334 million disbursement. This marks progress in areas such as inflation control, foreign reserves management, and revenue collection. The economy has rebounded, showing 4.3% growth since 2023 and recovering around 40% of the economic losses incurred between 2018 and 2023.
Looking ahead, Sri Lanka plans to leverage the upcoming IMF Spring Meetings in Washington from April 21 to 26 to showcase its reform achievements. This platform offers an opportunity to seek reduced trade barriers, attract investment, and request technical support—steps crucial to strengthening underperforming export sectors and enhancing the country’s economic resilience amidst growing external pressure.
