The International Monetary Fund (IMF) yesterday called on Sri Lanka to expedite the finalisation of agreements with remaining bilateral and commercial creditors, warning that delays could hinder debt sustainability and stall investor confidence.
A visiting IMF mission led by Evan Papageorgiou, Mission Chief for Sri Lanka, concluded a four-day official visit to Colombo on Thursday (25), during which it assessed recent economic developments and progress under the country’s Extended Fund Facility (EFF) programme.
In a statement issued at the end of the visit, the IMF commended the government’s reform efforts, noting that key macroeconomic indicators were showing marked improvement. “The economic reforms implemented by Sri Lankan authorities are bearing fruit, with growth outperforming, inflation progressing to target, external reserves accumulating, and fiscal revenues improving,” the statement said.
Real GDP grew by 4.8% in the first quarter of 2025, while gross international reserves reached US$6 billion by the end of June. Headline inflation remained subdued at -1.1% in Q2, with strong tax revenue performance—particularly from VAT and motor vehicle imports.
However, the IMF cautioned that downside risks are mounting due to global geopolitical tensions, potential trade barriers, and policy uncertainties. “This underscores the critical importance of maintaining reform momentum and rebuilding fiscal space and external buffers,” it noted.
The Fund emphasized the need to operationalise the Public Debt Management Office urgently, alongside implementing robust fiscal measures in the 2026 budget. These include strengthening tax compliance, rationalising exemptions, broadening the tax base, and enforcing prudent public financial management practices.
“Maintaining macroeconomic stability requires sustained efforts to raise fiscal revenues. The upcoming budget must be backed by strong revenue measures and appropriate spending allocations,” the IMF said, adding that protecting vulnerable communities through well-targeted social assistance remains essential.
It also reiterated the need for reforms in public enterprises, procurement, asset management, and energy pricing, while urging faster implementation of laws aligned with international best practices.
On the monetary front, the IMF underscored the importance of Central Bank independence, continued reserve accumulation, exchange rate flexibility, and strengthening of financial sector governance, especially the oversight of state-owned banks and resolution of non-performing loans.
The IMF also stressed governance and anti-corruption reforms, along with structural measures to liberalise trade and investment, boost female labour force participation, and address climate vulnerabilities.
The Fifth Review of Sri Lanka’s EFF-supported programme will formally assess progress on key commitments, with its timing to be decided in consultation with the government.
During the visit, the IMF team met with President and Finance Minister Anura Kumara Dissanayake, Labour Minister Prof. Anil Jayantha Fernando, Central Bank Governor Dr. P. Nandalal Weerasinghe, Treasury Secretary Dr. Harshana Suriyapperuma, and other senior government and Central Bank officials. The delegation also held discussions with private sector representatives, civil society groups, and development partners.
