COLOMBO — The International Monetary Fund (IMF) has commended Sri Lanka’s robust economic recovery, acknowledging 11 consecutive quarters of growth while calling for continued fiscal reforms, price stability, and strong anti-corruption protections.
Following a staff mission led by Evan Papageorgiou to conduct the Seventh Review of the Extended Fund Facility (EFF) programme and the 2026 Article IV Consultation, the Fund signaled that discussions are progressing steadily toward a staff-level agreement in the near term.
Key Highlights
- Strong Economic Momentum: Sri Lanka’s GDP expanded by 4.2% in the second quarter of 2026, marking nearly three years of uninterrupted expansion.
- Reserves Buoyed: Gross official reserves rose to $6.9 billion by the end of August 2026, supported by a stable, well-capitalized banking sector.
- Debt Restructuring Progress: Sovereign debt restructuring is largely complete alongside solid fiscal performance during the first half of the year.
- Policy Priorities: The IMF called for broadening the tax base, maintaining energy cost-recovery pricing, retaining the 5% inflation target, and protecting anti-corruption laws.
Despite these encouraging achievements, the IMF cautioned that downside risks persist. The Fund pointed to global trade policy shifts, ongoing volatility in the Middle East, and potential adverse impacts from El Niño weather conditions as key vulnerabilities in a shock-prone global environment.
To sustain momentum, the IMF underscored the need for a comprehensive medium-term revenue strategy. Key measures include widening the tax base, rationalizing tax exemptions, and bolstering revenue administration. The Fund also stressed the importance of resolving capital expenditure bottlenecks, particularly for reconstruction projects linked to Cyclone Ditwah, while keeping energy pricing aligned with cost-recovery models to prevent fiscal drain from state-owned enterprises.
On the monetary front, the IMF advised keeping Sri Lanka’s current 5% inflation target and accountability framework intact, noting that it provides the necessary flexibility to navigate food and energy price swings. Crucially, the Fund warned against recently proposed amendments that could dilute the country’s anti-corruption legislative framework, emphasizing that maintaining transparency and accountability is non-negotiable for long-term recovery.
During the visit, the IMF delegation held high-level talks with top officials, including President and Finance Minister Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, and Central Bank Governor Dr. P. Nandalal Weerasinghe, reaffirming its ongoing commitment to Sri Lanka’s economic reform agenda.