IMF and Sri Lankan Authorities Reach Agreement on Economic Policies

March 22, Colombo, LNW: The International Monetary Fund (IMF) has announced that its staff, in conjunction with Sri Lankan authorities, have reached a staff-level agreement on economic policies, marking the conclusion of the second review of the 4-year Extended Fund Facility (EFF)-supported program and the 2024 Article IV Consultation.

Upon approval by IMF Management and completion by the IMF Executive Board, Sri Lanka is set to receive access to SDR 254 million (approximately US$337 million) in financing. This disbursement will bring the total IMF financial support provided under the arrangement to SDR 762 million (about US$1 billion).

The agreement reflects progress in macroeconomic policy reforms, with positive outcomes including rapid disinflation, robust reserve accumulation, and signs of economic growth. Notable achievements include strengthened public finances following substantial fiscal reforms and met performance criteria and indicative targets, with some structural benchmarks yet to be fully implemented.

Economic indicators point towards gradual improvement, with positive growth registered in the third and fourth quarters of 2023 and inflation decelerating significantly. Efforts to sustain reform momentum, address governance weaknesses, and tackle corruption vulnerabilities are highlighted as crucial for ensuring lasting recovery and stable, inclusive growth.

The IMF team also underscored the importance of fiscal reforms, revenue mobilization goals, revenue administration enhancements, and maintaining cost recovery in fuel and electricity pricing to mitigate fiscal risks. Efforts towards debt restructuring and agreements with official and private creditors are deemed vital for restoring debt sustainability over the medium term.

Furthermore, the authorities’ commitment to implementing governance reforms, as outlined in the recently published Action Plan, is commended. Continued efforts to improve social safety nets, particularly Aswesuma, are essential to safeguarding the vulnerable segments of society.

The IMF mission team, which engaged with various stakeholders including government officials, parliamentarians, private sector representatives, civil society organizations, and development partners, expressed gratitude for the collaboration of the Sri Lankan authorities.