IMF strikes Sri Lanka deal, $700 million tranche expected

Colombo: Sri Lanka and the International Monetary Fund (IMF) have reached staff-level agreement on economic policies to conclude the combined fifth and sixth reviews of the island nation's reform programme, the global body said in a statement on Thursday.

An IMF team was here in Sri Lanka from March 26 until April 9 to conduct the combined fifth and sixth reviews of Sri Lanka’s reform programme supported by the global lender's Extended Fund Facility (EFF).

The two tranches together will release USD 700 million from the USD 2.9 billion bailout in 2023.

The IMF noted that ongoing economic reforms implemented by Sri Lankan authorities have supported the country’s recovery, with foreign reserves increasing and both real GDP growth and revenue mobilisation exceeding expectations.

"Sri Lanka’s ambitious reform agenda continues to deliver commendable outcomes. The economy grew by 5 per cent year on year in 2025. Inflation has returned to positive territory and rebounded to 2.2 per cent year on year in March, and gross official reserves reached US$7 billion in end-March 2026," the IMF statement said in Colombo at the end of their visit.

Fiscal performance in 2025 was strong, primarily supported by taxes on motor vehicle imports. Debt restructuring is nearing completion, with the successful completion of Sri Lankan Airlines’ debt exchange and further progress in finalising remaining bilateral agreements.

"Sri Lanka is significantly exposed to the Middle East conflict, which has heightened energy prices, disrupted a key air hub for tourists, and affected Sri Lankans working in the region," it said.

"Authorities have ameliorated disruptions to economic activity by securing sufficient fuel supplies for households and industries. At the same time, the country needs to address the infrastructure and spending needs caused by Cyclone Ditwah."

"Heightened downside risks to the economy from disaster risks, persistent trade policy uncertainty and the conflict in the Middle East emphasise the urgency to accelerate the reform momentum to safeguard macroeconomic stability, enhance Sri Lanka’s resilience to shocks, and maintain the economy on a path toward recovery and inclusive growth”.

IMF advises that it is important to continue building fiscal space through strong revenue measures and prudent spending execution. This requires sustained efforts to improve tax compliance, broaden the tax base, address revenue leakages, and enhance public financial management. It is instrumental to restore and maintain cost-recovery fuel and electricity pricing while assisting the most vulnerable. Continued vigilance is needed to minimise fiscal risks and safeguard fiscal discipline.

"As Sri Lanka starts building back better, projects should be prioritised judiciously and spending executed transparently and in compliance with the Public Financial Management Act. Any fiscal support in response to exogenous shocks should be well-targeted, carefully costed, and time-bound."

"Protecting the poor and vulnerable, who are disproportionately affected, should remain a priority, and this calls for the steadfast strengthening of social safety nets by improving their targeting, adequacy, coverage, and shock-responsiveness”.

The IMF welcomes the publication of the 2026 government action plan on governance reforms. Its effective implementation will help advance the anti-corruption agenda and support growth.