IMF Approves $695 Million Package To Strengthen Sri Lanka’s Economic Recovery

The International Monetary Fund (IMF) has approved USD 695 million in financial assistance for Sri Lanka as the country continues to grapple with the combined economic pressures of cyclone recovery and external shocks linked to rising global energy prices. The approval follows a combined review of Sri Lanka’s ongoing economic reform programme under its 48-month Extended Fund Facility (EFF), which is valued at approximately USD 2.4 billion. The latest tranche is intended to support macroeconomic stability and recovery efforts.

The IMF decision comes at a time when Sri Lanka is still recovering from the devastating impact of Cyclone Ditwah, which struck in November last year. The cyclone caused widespread destruction across the island nation and resulted in over 600 deaths, according to earlier assessments. In addition to the humanitarian toll, the disaster left behind estimated direct damages of around USD 4.1 billion, placing further strain on an already fragile economy.

Compounding these challenges, Sri Lanka’s economic outlook has been affected by rising global oil prices linked to geopolitical tensions in West Asia. According to IMF Deputy Managing Director Kenji Okamura, higher energy costs have significantly worsened the country’s external position. He noted that inflationary pressures are expected to rise while the current account balance may weaken further, particularly due to reduced tourism inflows and heightened global uncertainty.

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Okamura highlighted that Sri Lanka’s reform programme implementation has remained broadly strong despite these adverse conditions. However, he stressed that additional progress is required in key areas such as public financial management, investment planning, and electricity sector reforms. He also underscored the importance of sustained revenue mobilisation, calling for a more efficient and growth-oriented tax framework supported by a medium-term revenue strategy.

The IMF further advised Sri Lanka to adopt calibrated fiscal measures in the near term to cushion the economic impact of recent shocks. It noted that temporary relief packages and additional recovery spending were appropriate for 2026, while also emphasising the need to return to a primary balance target of 2.3 per cent of GDP from 2027 onwards. The institution also warned that while debt restructuring efforts are nearing completion, risks to long-term debt sustainability remain elevated.

Looking ahead, the IMF called for continued focus on price stability through monetary policy, along with greater exchange rate flexibility and the gradual removal of balance-of-payments restrictions to strengthen external buffers. It also recommended structural reforms and renewed public infrastructure investment to support long-term growth and improve investor confidence.

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