October 05, Colombo (LNW): Sri Lanka has reached a staff-level agreement with the International Monetary Fund (IMF) on the next phase of its economic reform programme, potentially paving the way for a further disbursement of around US$345 million.
The agreement follows the conclusion of discussions on the seventh review of the country’s four-year Extended Fund Facility (EFF) programme, alongside the IMF’s 2026 Article IV consultation.
The proposed funding remains subject to approval by the IMF Executive Board. Before the review can proceed to the Board, Sri Lanka is required to present its 2027 Budget to Parliament in line with the programme’s agreed parameters and complete a financing assurances review covering support from multilateral partners and progress on debt restructuring.
If approved, Sri Lanka would receive SDR 254 million, equivalent to approximately US$345 million. This would take total IMF disbursements under the current EFF arrangement to SDR 2.032 billion, or roughly US$2.7 billion.
The IMF said Sri Lanka’s economy had continued to withstand a series of external and domestic shocks, pointing to sustained economic expansion, moderate inflation, stronger reserves and improvements in the banking and fiscal sectors.
Economic activity grew by 4.2 per cent year-on-year in the second quarter of 2026, marking the eleventh consecutive quarter of growth. Headline inflation stood at 8 per cent in September, while gross official reserves had risen to US$6.9 billion by the end of August.
The Fund also noted that the banking sector remained adequately capitalised and profitable, while fiscal performance during the first half of the year was described as strong. The country’s debt restructuring process was also said to be largely complete.
Despite these improvements, the IMF cautioned that the outlook remains vulnerable to external developments, particularly the uncertainty surrounding the duration and severity of the conflict in the Middle East. Global trade policy and the potential effects of El Niño were also identified as risks to Sri Lanka’s recovery.
IMF Mission Chief for Sri Lanka Evan Papageorgiou said maintaining fiscal discipline and continuing with structural reforms would be crucial to preserving the gains achieved under the programme.
The Fund urged the Government to ensure that domestic fuel prices continue to reflect international market movements and that energy pricing remains on a cost-recovery basis. At the same time, it called for stronger protection for vulnerable households through targeted, temporary and properly funded assistance.
The IMF also recommended further improvements to Sri Lanka’s social protection system, particularly in expanding coverage and ensuring that support reaches households most in need. Should external pressures lead to a renewed acceleration in inflation, monetary authorities were advised to remain prepared to tighten policy if necessary.
Beyond immediate economic pressures, the Fund stressed the importance of maintaining momentum on longer-term reforms. These include developing a medium-term strategy to strengthen government revenue, improving the efficiency and fairness of taxation, and addressing obstacles that have slowed public investment.
Accelerating reconstruction and recovery efforts following Cyclone Ditwah was also highlighted as an important priority.
The IMF further called for greater flexibility in the exchange rate to help the economy absorb external shocks and build foreign exchange reserves. It also emphasised the importance of maintaining the country’s anti-corruption framework and strengthening public confidence in economic governance.
To support stronger and more inclusive growth, the Fund recommended reforms aimed at opening up trade, modernising business and labour regulations, widening access to finance, expanding digital public infrastructure and addressing shortcomings in physical infrastructure.
The latest discussions followed an IMF mission to Sri Lanka from 10 to 23 September, after which further meetings were held virtually with senior government and Central Bank officials to finalise the agreement.
The current EFF programme, worth SDR 2.3 billion, approximately US$3 billion, was approved by the IMF Executive Board on 20 March 2023.
