Central Bank Governor Dr. Nandalal Weerasinghe yesterday indicated that changes to Sri Lanka’s ongoing International Monetary Fund (IMF) Extended Fund Facility (EFF) cannot be ruled out, as the country assesses emerging economic needs following the impact of Cyclone Ditwah.
Speaking at the post-Monetary Policy announcement press conference, Dr. Weerasinghe said IMF staff are currently evaluating the economic fallout from the cyclone ahead of the delayed fifth review under the EFF. The review, originally scheduled for mid-December, was postponed due to the disaster, with Sri Lanka instead receiving $ 206 million in emergency assistance through the IMF’s Rapid Financing Instrument.
“The IMF team is here to assess the impact of the cyclone. Following that, there will be a staff review mission to examine programme targets and determine whether any revisions are necessary,” the Governor said, adding that discussions would continue until consensus is reached to complete the fifth review.
Dr. Weerasinghe stressed that steady progress under the IMF-supported programme remains crucial for sustaining Sri Lanka’s recovery and improving sovereign credit ratings. He said further ratings upgrades would be especially important in strengthening investor confidence and attracting foreign capital, even as the economy increasingly relies on its own foreign exchange earnings.
“At present, we are depending more on foreign exchange inflows generated through the economy rather than capital inflows,” he said. “However, ratings improvements are essential. We are hopeful of another upgrade this year, which would significantly boost investor trust and confidence.”
The Governor noted that higher sovereign ratings would help unlock foreign direct investment and other forms of external financing. He also pointed to signs of improving domestic confidence, citing credit growth and stronger activity in the stock market as indicators that local investment is picking up.
“There is clear evidence of domestic investment taking place. Confidence is improving locally,” he said. “For foreign investment, we need continued stability, and that comes from sustained improvements in macroeconomic fundamentals.”
Dr. Weerasinghe emphasised that rebuilding economic buffers remains central to safeguarding Sri Lanka against future shocks. He highlighted the importance of maintaining adequate foreign exchange reserves, fiscal cash buffers and monetary policy space, noting that the absence of such buffers had amplified the severity of the 2022 crisis.
On the external front, he said Sri Lanka has recorded current account surpluses over the past two years, driven by stronger inflows from tourism, worker remittances and exports. “This shows that the country is now earning more foreign exchange than it is spending, which is a critical shift,” he said.
Addressing monetary conditions, the Governor explained that recent short-term volatility in interbank interest rates was due to temporary liquidity tightness in certain banks and had corrected without Central Bank intervention. He said rates have since realigned with the Overnight Policy Rate, with the adjustment expected to pass through to Treasury Bills, Bonds and prime lending rates.
Looking ahead, Dr. Weerasinghe said Cyclone Ditwah is likely to have only a temporary impact on economic growth, with some moderation expected in the fourth quarter of 2025, followed by a rebound supported by higher fiscal spending in 2026.
