In a significant milestone, the International Monetary Fund (IMF) and Sri Lankan authorities have
reached a staff-level agreement on the first review of the 48-month Extended Fund Facility (EFF)
arrangement. The agreement signals a positive step towards economic stability for Sri Lanka, with
the potential access to SDR 254 million (approximately US$330 million) once approved by the IMF
Management and Executive Board.
The IMF’s Senior Mission Chief for Sri Lanka, Mr. Peter Breuer, and Deputy Mission Chief Ms.
Katsiaryna Svirydzenka, issued a joint statement following constructive discussions in Colombo
and during the Annual Meetings in Marrakech. The statement highlights the progress made in
macroeconomic policy reforms and acknowledges the tentative signs of stabilization in the Sri
Lankan economy.
The EFF-supported program, approved by the IMF Executive Board in March 2023 for a total of
SDR 2.3 billion (about US$3 billion), aims to address economic challenges and lay the groundwork
for sustainable growth. The staff-level agreement is contingent on the implementation of prior
actions by the authorities and the completion of financing assurance reviews, including progress in
debt restructuring.
The statement emphasizes the commendable reform efforts undertaken by Sri Lanka, citing rapid
disinflation and a significant fiscal adjustment expected by the end of the year. Program
performance at the end of June was generally satisfactory, though challenges persist, such as the
issue of expenditure arrears and tax revenue targets.
While the economy shows early signs of stabilization, challenges remain. Inflation has decreased,
international reserves have increased, and shortages of essentials have eased. However, full
economic recovery is not assured, and growth momentum remains subdued. External challenges,
including prolonged debt restructuring discussions, have weakened Sri Lanka’s external position.
The IMF team underscores the importance of sustaining reform momentum, addressing governance
weaknesses, and combating corruption to foster stable and inclusive economic growth. The
authorities’ commitment to increasing revenues, improving tax administration, and eliminating tax
evasion is acknowledged, as is the need to strengthen the social safety net to protect the vulnerable.
The statement urges a swift resolution to debt restructuring discussions with official creditors,
emphasizing the risks of delays to Sri Lanka’s economic outlook and capacity to repay. The
commitment to implement recommendations from the Governance Diagnostic Report is welcomed,
with a focus on addressing corruption risks and strengthening accountability to rebuild economic
confidence.