IMF approves $334M tranche for Sri Lanka after 3rd review

Sri Lanka's total financial support from the IMF under the current arrangement now stands at SDR 1.02 billion (roughly US$1.34 billion).

The IMF report highlighted that Sri Lanka has met most of the quantitative targets set for the program, with the exception of the indicative target on social spending. Furthermore, the majority of the structural benchmarks due by the end of January 2025 have been met, although some were implemented with delays. A significant milestone in the debt restructuring process was also noted with the successful completion of the bond exchange, which is seen as a key step toward restoring the country's debt sustainability.

Despite challenges, the IMF commended the progress made under Sri Lanka's reform agenda, noting that the economy is recovering with growth averaging 4.3% since the third quarter of 2023. The IMF’s Deputy Managing Director, Kenji Okamura, emphasized the importance of sustaining the reform efforts to ensure long-term economic stability. He cautioned that Sri Lanka's economy remains vulnerable and stressed that avoiding policy missteps is essential for maintaining the momentum of recovery and ensuring debt sustainability.

"Reforms in Sri Lanka are bearing fruit, and the economic recovery has been remarkable," Okamura stated. "Inflation remains low, revenue collection is improving, and reserves continue to accumulate. However, the recovery is still fragile, and the implementation of structural reforms remains crucial to unlocking long-term inclusive growth."

The IMF also pointed to several key priorities moving forward, including boosting tax compliance, addressing fiscal risks from state-owned enterprises, and advancing the debt restructuring process. The successful bond exchange is seen as a major step towards restoring debt sustainability, with the IMF urging the timely finalization of bilateral agreements with creditors.

In terms of fiscal policy, Okamura stressed the need for sustained revenue mobilization and the restoration of cost-recovery electricity pricing to mitigate fiscal risks. Additionally, the IMF urged the government to ensure that social support programs target the most disadvantaged, helping to promote inclusive growth amidst limited fiscal space.

The IMF’s statement highlighted the importance of continued monetary policy efforts to maintain price stability and ensure the independence of Sri Lanka's Central Bank. The report also underscored the need to address non-performing loans, improve the governance of state-owned banks, and strengthen the country's insolvency frameworks to support the ongoing economic recovery.

As Sri Lanka continues to rebuild and reform, the IMF emphasized that addressing long-standing structural challenges remains key to unlocking the country's full economic potential.