IMF reaches staff-level agreement with Sri Lanka

COLOMBO, OCT 5 (PTI): The International Monetary Fund on Monday said it has reached a staff-level agreement with Sri Lanka on the seventh review under its Extended Fund Facility that will allow the island nation access to USD 345 million from its USD 2.9 billion bailout facility approved in 2023.
The Washington-based lender also said that while Sri Lanka’s economy has proved remarkably resilient to successive shocks as a result of the economic reforms, it still faces downside risks from uncertainty over the duration and intensity of the war in the Middle East, global trade policy and the effect of El Nino. “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),” the IMF said in a statement.
“Once the review is approved by the IMF Executive Board, Sri Lanka will have access to about USD 345 million in financing, it added.
The IMF team was in Colombo between September 10 and 23 to complete the formalities of the seventh review.
With the completion of the latest review, Sri Lanka would have access to about USD 345 million, bringing the total IMF financial support disbursed under this arrangement to about USD 2.7 billion out of the near 3 billion facility lasting 4 years from 2023.
The IMF said the island’s economic activity expanded by 4.2 per cent in the second quarter of 2026, marking eleven consecutive quarters of strong growth.
“Gross official reserves have increased, reaching USD 6.9 billion at end-August 2026. Banks remain well capitalised and profitable”.
“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,” it added.
In response to a protracted Middle East war, the government should allow domestic fuel prices to adjust with international fuel price movements and maintain cost-recovery energy pricing while protecting the vulnerable, it said.
“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 mobilisation, while also enhancing the efficiency and fairness of the tax system, and providing policy certainty to investors,” it said.
It added that efforts to strengthen public investment management should continue to address bottlenecks to capital spending execution, including to accelerate Cyclone Ditwah-related recovery and reconstruction.