The International Monetary Fund (IMF) has reached a staff-level agreement with Sri Lankan authorities on the seventh review of the country’s reform programme under the four-year Extended Fund Facility (EFF), paving the way for about $345 million in additional financing, subject to approval by the IMF Executive Board.

The agreement is conditional on Sri Lanka’s Finance Minister presenting the 2027 Budget to Parliament in line with programme parameters and the completion of a financing assurances review to confirm multilateral financing contributions and assess progress on debt restructuring.

Once approved, Sri Lanka will receive SDR 254 million (about $345 million), taking total disbursements under the EFF arrangement to SDR 2.032 billion (about $2.7 billion). The IMF Executive Board approved the four-year arrangement, worth SDR 2.3 billion (about $3 billion), in March 2023.

According to IMF Mission Chief for Sri Lanka Evan Papageorgiou, the economy has remained resilient despite successive shocks. Economic activity grew 4.2 per cent year-on-year in the second quarter of 2026, marking 11 consecutive quarters of strong growth, while headline inflation stood at 8 per cent in September. Gross official reserves reached $6.9 billion at the end of August, while banks remained well capitalised and profitable.

The IMF said Sri Lanka’s fiscal performance in the first half of 2026 was strong and that its debt restructuring was largely completed.

However, the Fund warned that risks remain tilted to the downside, citing uncertainty over the duration and intensity of the war in the Middle East, global trade policy and the impact of El Niño.

The IMF urged the government to allow domestic fuel prices to adjust in line with international prices and maintain cost-recovery energy pricing while protecting vulnerable households. It called for government support to be targeted, budgeted, carefully costed and time-bound to safeguard fiscal and debt sustainability.

The Fund also recommended strengthening poverty-targeted cash transfers and improving the coverage and responsiveness of Sri Lanka’s social safety nets. If the Middle East conflict generates stronger second-round inflationary pressures, monetary policy should be prepared to tighten to prevent inflation expectations from becoming unanchored.

The IMF said Sri Lanka should maintain momentum on its broader reform agenda, including developing a medium-term revenue strategy, improving the efficiency and fairness of the tax system and strengthening public investment management.

It also called for greater exchange-rate flexibility, preservation of the anti-corruption legislative framework and reforms to liberalise trade, modernise business and labour regulations, expand access to finance and advance digital public infrastructure.

Fibre2Fashion News Desk (CG)