The International Monetary Fund’s (IMF) Executive Board has approved the combined Fifth and Sixth Reviews under the country’s Extended Fund Facility (EFF) arrangement, releasing approximately $695 million in two tranches.
This disbursement brings the total IMF support disbursed under the nearly $3 billion EFF program, originally approved in March 2023, to about $2.4 billion. The funds are expected to bolster foreign reserves, support fiscal needs, and reinforce investor confidence as the island nation continues its recovery from the 2022 economic crisis.
Strong Performance Amid Challenges
IMF staff highlighted Sri Lanka’s notable progress in implementing reforms despite external shocks, including the impacts of Cyclone Ditwah in late 2025. Economic growth has shown resilience, with the economy expanding by around 5% year-on-year in recent periods, supported by improved fiscal discipline, revenue mobilization, and debt restructuring advancements.
Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:
“Sri Lanka’s strong implementation under the EFF arrangement has continued despite challenging circumstances. Gains from the economic reform program helped preserve economic resilience and provided room to respond to cyclone Ditwah and the Middle East war. The latter, however, has significantly worsened Sri Lanka’s economic outlook and tilted risks to the downside. For 2026, growth is projected to slow down to 3 percent. Higher oil prices would increase inflation and weaken the current account, which would also be adversely impacted by lower tourism receipts. The uncertainty, regarding the war’s intensity and duration, heightens risks to the outlook.
“Fiscal easing in 2026 is appropriate in response to the shocks, and the government is implementing a temporary relief package, while also allocating additional spending to support recovery and reconstruction following Cyclone Ditwah. From 2027 onward, the authorities are appropriately committed to reverting to the primary balance target of 2.3 percent of GDP, as well as complying with the primary expenditure ceiling.
“Program performance remains generally strong, but efforts are required to complete public financial and investment management, and electricity sector reforms. Sustained revenue mobilization is crucial to make the tax system more efficient and growth-enhancing and should be spearheaded by developing a medium-term revenue strategy. Debt restructuring is nearing completion, but debt sustainability risks remain high.
“Monetary policy should continue prioritizing price stability. Greater exchange rate flexibility and gradually phasing out the balance-of-payments measures remain critical to rebuild external buffers and resilience.
“Well-calibrated structural reforms and renewed public infrastructure are also needed to improve the investment climate and lift the growth potential
IMF’s Key Advice and Comments
The IMF commended Sri Lanka for key achievements but stressed that the reform momentum must continue to safeguard hard-won gains:
Fiscal and Debt Sustainability: Authorities should maintain prudent fiscal policies, including protecting vulnerable groups while ensuring cost-recovery pricing for electricity and fuel. The IMF urged completion of remaining debt restructuring steps and strong financing assurances from multilateral and bilateral partners.
Structural Reforms: Continued focus on governance improvements, anti-corruption measures, and growth-oriented policies, such as enhancing the business environment and rebuilding external buffers.
Monetary and Financial Stability: Safeguarding price stability and financial sector resilience remains critical, especially amid global uncertainties like fluctuating oil prices and geopolitical tensions.
Vulnerability Mitigation: The IMF noted the need to address risks from external shocks and advised building stronger safety nets for the poor while advancing reforms in state-owned enterprises.
“Program performance has been broadly on track, delivering positive results,” IMF staff noted. “However, restoring cost-recovery pricing for electricity and fuel, while protecting the vulnerable, is essential for long-term sustainability.” The Board approval is contingent on these ongoing commitments.
Government and Local Reactions
Sri Lankan officials welcomed the approval as a testament to the government’s reform commitment. The funds will help strengthen the Central Bank of Sri Lanka’s reserves, which have faced pressures from debt servicing and import costs. Economists anticipate the injection will support the rupee, ease import financing, and catalyze additional financing from other international partners.
This latest tranche arrives as Sri Lanka navigates inflation concerns and aims for sustained growth in the post-crisis era. With the IMF’s continued backing, the country is better positioned to attract foreign investment and achieve durable economic resilience.
Analysts say that the approval could mark a pivotal step toward Sri Lanka regaining full market access and transitioning to a more self-sustaining growth trajectory in the coming years.
IMF Approves $344 Million Tranche for Sri Lanka Under Extended Fund Facility
