Sri Lanka Reaches Staff-Level Deal With IMF on Seventh EFF Review

The International Monetary Fund said its staff and the Sri Lankan authorities have reached a staff-level agreement on economic policies to conclude the Seventh Review of Sri Lanka’s reform program supported by the Extended Fund Facility, according to an end-of-mission statement issued in Washington, DC, on October 4, 2026. Once the review is approved by the IMF Executive Board, Sri Lanka would have access to SDR 254 million (about US$345 million) in financing.

Upon completion of the Executive Board review, the disbursement would bring total IMF financial support disbursed under the arrangement to SDR 2.032 billion (about US$2.7 billion). The four-year 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.

IMF Mission Chief for Sri Lanka Evan Papageorgiou issued the statement, published as Press Release No. 26/318, after what the Fund described as constructive discussions. The mission also concluded the 2026 Article IV Consultation discussions with the authorities.

Conditions for Executive Board Approval

The staff-level agreement is subject to IMF Executive Board approval. That approval is contingent on the presentation by the Minister of Finance to Parliament of the 2027 Budget, in line with program parameters, and on the completion of the financing assurances review, which confirms multilateral partners’ financing contributions and assesses adequate progress with debt restructuring.

In the statement, IMF staff said Sri Lanka’s economy “has proved remarkably resilient to successive shocks.” Economic activity expanded by 4.2 percent in the second quarter of 2026, marking eleven consecutive quarters of strong growth. Headline inflation was 8 percent year on year in September 2026 and remains in single digits. Gross official reserves increased, reaching US$6.9 billion at end-August 2026. Banks remain well capitalized and profitable, the fiscal outturn in the first half of 2026 was strong, and debt restructuring is largely completed.

IMF staff said 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, according to the statement.

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, staff said. Any 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, and 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.

Reform Agenda and Mission Details

On the broader reform agenda, IMF staff said developing and implementing a medium-term revenue strategy would support the authorities’ efforts to sustain revenue mobilization while 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 recovery and reconstruction related to Cyclone Ditwah.

Greater exchange rate flexibility remains key to absorbing shocks and supporting reserve accumulation, staff said, and 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.

The IMF team visited Sri Lanka from September 10 to 23, 2026, and subsequently 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 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,” Papageorgiou said.

The release states that end-of-mission statements convey the preliminary findings of IMF staff teams and that the views expressed are those of IMF staff and do not necessarily represent the views of the IMF Executive Board. Based on the preliminary findings of the mission, staff will prepare a report that, subject to management approval, will be presented to the Executive Board for discussion and decision.