IMF Reaches Staff-Level Agreement with Sri Lanka on EFF Reviews, Unlocking Potential $700 Million Disbursement

The International Monetary Fund (IMF) staff and Sri Lankan authorities have reached a staff-level agreement on the combined fifth and sixth reviews under the country’s four-year Extended Fund Facility (EFF) arrangement. The program, approved by the IMF Executive Board on March 20, 2023, provides a total of SDR 2.3 billion, approximately $3 billion in financial support.

The agreement follows an IMF mission to Sri Lanka led by Evan Papageorgiou, which took place from March 26 to April 9, 2026. The visit focused on assessing recent macroeconomic developments and evaluating progress on economic and financial reforms under the EFF program.

“The staff-level agreement is subject to IMF Executive Board approval, contingent on: (i) the restoration of cost-recovery electricity and fuel pricing while protecting the vulnerable and (ii) the completion of the financing assurances review, to confirm multilateral partners’ financing contributions and assess adequate progress with debt restructuring,” said Papageorgiou in a statement.

If approved by the Executive Board, Sri Lanka would gain access to approximately SDR 508 million, or about $700 million. This would bring total disbursements under the program to SDR 1.778 billion, roughly $2.4 billion.

Papageorgiou noted that Sri Lanka’s reform agenda has produced positive results. “Sri Lanka’s ambitious reform agenda continues to deliver commendable outcomes. The economy grew by 5 percent y/y in 2025. Inflation has returned to positive territory and rebounded to 2.2 percent y/y in March, and gross official reserves reached US$7 billion in end-March 2026,” he said.

He added that fiscal performance in 2025 remained strong, supported in part by tax revenues from motor vehicle imports, while debt restructuring efforts are nearing completion. This includes progress on bilateral agreements and the successful debt exchange involving Sri Lankan Airlines.

At the same time, Papageorgiou cautioned that Sri Lanka remains vulnerable to external shocks, particularly due to the ongoing conflict in the Middle East, which has driven up energy costs, disrupted tourism flows, and affected remittances from Sri Lankans working in the region. Authorities have mitigated some of these impacts by ensuring adequate fuel supplies for households and industries.

He also highlighted the need to address infrastructure and spending requirements following Cyclone Ditwah. Broader risks, including climate-related disasters and global trade uncertainty, underscore the urgency of sustaining reform momentum to support macroeconomic stability and long-term growth.

“On this front, 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 minimize fiscal risks and safeguard fiscal discipline,” he added.

Papageorgiou emphasized the importance of prioritizing public investment projects and ensuring transparency in spending as Sri Lanka advances reconstruction efforts. He noted that any fiscal support in response to external shocks should be targeted, costed, and time-bound, with continued focus on protecting vulnerable populations through strengthened social safety nets.

“It is important for monetary policy to remain data-dependent and agile to safeguard price stability in the face of shocks. Central bank independence should continue to be upheld, including by continuing to prohibit monetary financing of the budget,” he said. “Rebuilding foreign reserves while allowing for exchange rate flexibility is a necessity amid global uncertainty. Resolving non-performing loans, promoting sound credit growth, and addressing vulnerabilities in some small licensed finance companies will help safeguard financial stability.”

He also welcomed the government’s 2026 action plan on governance reforms, noting that effective implementation would support anti-corruption efforts and economic growth. Key priorities include maintaining the independence of the Commission to Investigate Allegations of Bribery or Corruption, strengthening the beneficial ownership registry, and improving fiscal governance through legislation on public-private partnerships, state-owned enterprises, procurement, and asset management.

“Unlocking strong and durable growth for all Sri Lankans requires staying the course on reforms, including by sustaining trade liberalization efforts, accelerating digitalization initiatives, streamlining business regulations, and modernizing labor legislation to reduce rigidities,” he emphasized.

During the visit, the IMF team met with senior Sri Lankan officials, including President and Finance Minister Anura Kumara Dissanayake, Central Bank Governor P. Nandalal Weerasinghe, and other key policymakers. The delegation also held discussions with parliamentarians, private sector representatives, civil society organizations, and development partners.

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