The International Monetary Fund (IMF) has called on Sri Lanka to maintain prudent economic policies and accelerate structural reforms as the country faces continued risks from the Middle East war, global trade policy uncertainty and the impact of El Niño.
An IMF team led by Evan Papageorgiou visited Sri Lanka from September 10 to 23, 2026, to review recent macroeconomic developments, progress under the Extended Fund Facility (EFF) programme and policy priorities under the 2026 Article IV Consultation.
At the conclusion of the mission, issuing a statement, Papageorgiou said Sri Lanka’s economy had remained resilient despite successive shocks, with economic activity expanding by 4.2% in the second quarter of 2026, marking 11 consecutive quarters of strong growth.
However, headline inflation increased to 8% year-on-year in August amid the global oil price shock. The IMF noted that inflation expectations remained broadly anchored, while gross official reserves had risen to US$6.9 billion by the end of August.
The IMF also said banks remained well capitalized and profitable, while fiscal performance during the first half of 2026 was strong and debt restructuring was largely completed.
IMF Calls for Stronger Revenue Measures
The International Monetary Fund stressed the need for Sri Lanka to develop and implement a medium-term revenue strategy to sustain revenue mobilization while improving the efficiency and fairness of the tax system.
It called for efforts to broaden the tax base, rationalize tax exemptions and incentives, and strengthen revenue administration to improve tax compliance and generate sustainable revenue gains.
The IMF also emphasized the importance of maintaining cost-recovery energy pricing to minimize fiscal risks arising from state-owned enterprises.
It further urged the authorities to address bottlenecks affecting capital spending, including measures to accelerate recovery and reconstruction following Cyclone Ditwah.
Inflation Target Should Remain at 5% — IMF
The IMF said monetary policy should remain ready to respond to inflationary pressures and ensure price stability within the medium-term framework of flexible inflation targeting.
It also highlighted the importance of greater exchange-rate flexibility in absorbing external shocks and supporting the accumulation of foreign reserves.
At the first statutory review, the IMF said it would be prudent to retain the existing 5% inflation target and the current accountability band.
According to the Fund, the current target provides Sri Lanka with flexibility amid volatility in food and energy prices. It said consideration could be given to moving toward a lower inflation target at the next review once a track record of low and stable inflation has been established.
IMF Raises Concerns Over Anti-Corruption Amendments
The IMF also stressed the importance of preserving the integrity of Sri Lanka’s anti-corruption legislative framework, saying this would be critical to strengthening public trust.
The Fund said certain clauses in recently tabled amendments could weaken transparency and accountability.
It further called for continued structural reforms aimed at creating a more enabling business environment and attracting investment, including trade liberalization, modernization of business and labour regulations, broader access to finance and greater digitalization.
Northern Province Offers Growth Opportunities
During the mission, the IMF team also visited Jaffna and examined the economic potential of Sri Lanka’s Northern Province.
Discussions with private-sector representatives and civil society organizations identified opportunities to create jobs and promote growth through investment in connectivity, skills and sectors including agriculture, fisheries, tourism and renewable energy.
The IMF also emphasized the need to strengthen social protection so that the benefits of Sri Lanka’s economic transformation are more broadly shared.
The IMF team met President Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, senior government and Central Bank officials, parliamentarians, private-sector representatives, civil society organizations and development partners.
The IMF said discussions were continuing with the aim of reaching a staff-level agreement in the near term, paving the way for the timely completion of the Seventh Review under the EFF programme.
The IMF also reaffirmed its commitment to supporting Sri Lanka as the country continues its economic recovery and reform programme.
