Sri Lanka and IMF reach staff-level agreement on seventh review

International Monetary Fund (IMF) staff and the Sri Lankan authorities have reached staff-level agreement on economic policies to conclude the Seventh Review of Sri Lanka's reform program supported by the IMF's Extended Fund Facility (EFF).

Once the review is approved by the IMF Executive Board, Sri Lanka will have access to about USD 345 million in financing, the IMF stated.

The IMF noted that Sri Lanka’s economy has continued to show resilience amid successive shocks, as a result of the economic reforms undertaken by the authorities. However, risks remain tilted to the downside due to uncertainty over the intensity and duration of the conflict in the Middle East.

The IMF further stressed that continued prudent policies and bold reforms are essential to safeguard macroeconomic stability, protect recent gains and support strong, inclusive growth.

“Upon completion of the Executive Board review, Sri Lanka would have access to SDR 254 million (about US$345 million), bringing the total IMF financial support disbursed under this arrangement to SDR 2.032 billion (about US$2.7 billion), IMF Mission Chief for Sri Lanka Evan Papageorgiou said.

After constructive discussions, IMF Mission Chief for Sri Lanka Evan Papageorgiou issued the following statement:

“IMF staff and the Sri Lankan authorities have reached staff-level agreement on the Seventh Review under the 4-year Extended Fund Facility (EFF) arrangement and concluded the 2026 Article IV Consultation discussions. The EFF arrangement was approved by the IMF Executive Board for a total amount of SDR 2.3 billion (about US$3 billion) on March 20, 2023.

“The staff-level agreement is subject to IMF Executive Board approval, contingent on: (i) the presentation by the Minister of Finance to Parliament of the 2027 Budget, in line with program parameters and (ii) the completion of the financing assurances review to confirm multilateral partners’ financing contributions and assess adequate progress with debt restructuring.

“Sri Lanka’s economy has proved remarkably resilient to successive shocks. Economic activity expanded by 4.2 percent in 2026Q2, marking eleven consecutive quarters of strong growth. At 8 percent y/y in September, headline inflation remains in single digits. Gross official reserves have increased, reaching US$6.9 billion at end-August 2026. Banks remain well capitalized and profitable. Fiscal outturn in 2026H1 was strong and debt restructuring is largely completed.

“However, Sri Lanka continues to face downside risks from uncertainty over the duration and intensity of the Middle East war, global trade policy, and the impact of El Niño. Safeguarding macroeconomic stability in a shock-prone environment requires continuing with prudent policies and bold reforms to protect the hard-won gains of the program.

“In response to a protracted Middle East war, the government should allow domestic fuel prices to adjust in line with international fuel price movements and preserve cost-recovery energy pricing, while protecting the vulnerable. Support should be well-targeted, on budget, carefully costed, and time-bound to avoid jeopardizing fiscal and debt sustainability, eroding confidence, and reversing the recovery. Poverty-targeted cash transfers should be leveraged to shield the most vulnerable.

Successive shocks highlight the need to intensify efforts to improve the coverage, targeting, and responsiveness of social safety nets. In the event of stronger second-round inflationary effects from the Middle East war, monetary policy should stand ready to tighten to mitigate the risk of expectations becoming de-anchored.

“Staying the course on the broader reform agenda is critical to entrench stability and sustainably lift growth. Developing and implementing a medium-term revenue strategy would support the authorities’ efforts to sustain revenue mobilization, while also enhancing the efficiency and fairness of the tax system, and providing policy certainty to investors. Efforts to strengthen public investment management should continue to address bottlenecks to capital spending execution, including to accelerate Cyclone Ditwah-related recovery and reconstruction.

“Greater exchange rate flexibility remains key to absorbing shocks and supporting reserve accumulation. Preserving the integrity of the anti-corruption legislative framework is critical to enhance public trust. Delivering strong and inclusive growth requires creating an enabling environment by liberalizing trade, modernizing business and labor regulations, broadening access to finance, advancing digital public infrastructure, and closing infrastructure gaps.

“Following the visit to Sri Lanka during September 10-23, 2026, the IMF team held virtual meetings with Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Secretary to the Treasury Dr. Harshana Suriyapperuma, Senior Economic Advisor to the President Mr. Duminda Hulangamuwa and other senior officials to finalize the staff-level agreement.

“We would like to thank the authorities for the excellent discussions and strong collaboration.”