IMF approves US$695 million for Sri Lanka

The International Monetary Fund (IMF) has approved the combined Fifth and Sixth Reviews of Sri Lanka’s economic reform program, allowing the country to receive about US$695 million in fresh funding under the Extended Fund Facility (EFF) arrangement.

With the latest approval, Sri Lanka’s total IMF funding under the program has increased to about US$2.4 billion.

The IMF Executive Board completed the reviews on May 27, 2026. Sri Lanka’s 48-month EFF arrangement was originally approved on March 20, 2023, with total access of about US$3 billion.

According to the IMF, Sri Lanka has continued to implement its reform program despite difficult conditions. The IMF said the reforms helped maintain economic resilience and gave authorities space to respond to Cyclone Ditwah and the ongoing Middle East war.

However, the IMF warned that the Middle East conflict has significantly worsened Sri Lanka’s economic outlook and increased downside risks.

Sri Lanka’s economic growth for 2026 is now projected at 3 percent. The IMF said higher global oil prices could increase inflation and weaken the country’s current account balance, while lower tourism earnings could further affect the economy.

The IMF noted that uncertainty over the intensity and duration of the war continues to create risks for Sri Lanka’s recovery.

The IMF said the government’s decision to ease fiscal policy in 2026 is appropriate due to recent shocks. The government is currently implementing temporary relief measures and allocating additional funds for recovery and reconstruction work following Cyclone Ditwah.

From 2027 onward, Sri Lankan authorities are expected to return to the primary balance target of 2.3 percent of GDP and comply with expenditure limits under the program.

The IMF said overall program performance remains strong, but more progress is needed in public financial management, investment management, and electricity sector reforms.

The statement also stressed the importance of sustained revenue collection reforms to make the tax system more efficient and supportive of economic growth.

While Sri Lanka’s debt restructuring process is nearing completion, the IMF warned that debt sustainability risks remain high.

The IMF further stated that monetary policy should continue focusing on maintaining price stability, while greater exchange rate flexibility and gradual removal of balance-of-payments restrictions are important for rebuilding external reserves and economic resilience.

The IMF also highlighted the need for well-planned structural reforms and renewed public infrastructure investment to improve the investment climate and support long-term economic growth.