By: Staff Writer
May 28, Colombo (LNW): Sri Lanka has secured another major financial lifeline from the International Monetary Fund after the IMF Executive Board approved a fresh disbursement of US$695 million under the country’s Extended Fund Facility programme, even as authorities missed critical reform targets.
The latest approval followed the successful completion of the combined Fifth and Sixth Reviews of the IMF programme, bringing total IMF support extended to Sri Lanka to nearly US$2.4 billion.
While commending the government for maintaining “generally strong” reform implementation, the IMF highlighted concerns over Sri Lanka’s failure to prevent new external payment arrears and its inability to fully avoid additional import restrictions.
The IMF nevertheless recognised progress in several key areas, particularly the restoration of cost-reflective pricing for fuel and electricity reforms considered essential to stabilising state finances after the country’s unprecedented economic collapse.
In a significant policy concession, the IMF granted Sri Lanka temporary fiscal space in 2026 to finance relief and reconstruction activities linked to Cyclone Ditwah, which caused widespread damage and economic disruption across several regions.
However, the Washington-based lender stressed that fiscal discipline must resume from 2027 onward, requiring the government to maintain a primary budget surplus of 2.3 percent of GDP and comply with tight expenditure ceilings.
The IMF also directed Sri Lanka to prepare a medium-term revenue strategy focused on broadening the tax base, improving tax administration, and increasing state revenue collection.
Another key recommendation involved greater exchange rate flexibility, with the IMF urging the Central Bank to strengthen buffers against external shocks amid growing global uncertainty.
According to the IMF, mounting geopolitical tensions in the Middle East, coupled with the lingering economic effects of Cyclone Ditwah, continue to pose serious downside risks to Sri Lanka’s recovery by exerting pressure on energy prices and foreign exchange inflows.
Sri Lanka’s economy has shown signs of gradual stabilisation since entering the IMF programme, with inflation easing and tourism earnings recovering. However, analysts warn that maintaining reform momentum and restoring public confidence remain crucial for achieving long-term economic stability.
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