IMF reaches staff-level agreement on Sri Lanka’s seventh EFF review

Sri Lanka has reached a staff-level agreement with the International Monetary Fund (IMF) on the seventh review of its four-year Extended Fund Facility programme, which could unlock about US$345 million after IMF Executive Board approval.

IMF Mission Chief for Sri Lanka Evan Papageorgiou announced the agreement in a statement issued on October 4, 2026. The IMF team also concluded discussions under the 2026 Article IV Consultation.

Sri Lanka’s Extended Fund Facility (EFF) programme was approved by the IMF Executive Board on March 20, 2023, for a total amount of SDR 2.3 billion, equivalent to about US$3 billion.

Executive Board approval of the seventh review depends on the Minister of Finance presenting the 2027 Budget to Parliament in line with programme requirements and the completion of a financing assurances review.

That review will confirm financing contributions from multilateral partners and assess whether adequate progress has been made on debt restructuring.

Once the IMF Executive Board approves the seventh review, Sri Lanka would gain access to SDR 254 million, or about US$345 million. This would bring total IMF financial support disbursed under the programme to SDR 2.032 billion, equivalent to about US$2.7 billion.

The IMF said Sri Lanka’s economy had remained resilient despite successive shocks. Economic activity expanded by 4.2 percent in the second quarter of 2026, marking 11 consecutive quarters of strong growth.

Headline inflation stood at 8 percent year-on-year in September, while gross official reserves increased to US$6.9 billion by the end of August 2026.

The IMF also noted that Sri Lankan banks remain well capitalised and profitable, fiscal performance during the first half of 2026 was strong, and debt restructuring is largely complete.

However, it warned that Sri Lanka continues to face risks from uncertainty over the duration and intensity of the Middle East war, global trade policy and the impact of El Niño.

The IMF said Sri Lanka must continue careful economic policies and reforms to protect the progress already achieved and maintain economic stability.

In response to a prolonged Middle East war, domestic fuel prices should be allowed to adjust in line with international prices, while energy prices should continue to cover costs.

At the same time, support for vulnerable groups should be well targeted, included in the government budget, carefully costed and limited in duration. The IMF said this would help protect public finances and debt sustainability, maintain confidence and prevent a reversal of the recovery.

It called for greater use of cash transfers targeted at people living in poverty. Social safety nets should also reach more people in need, better identify those requiring support and respond more quickly to economic shocks.

The IMF said monetary policy should be ready to tighten if the Middle East war leads to stronger, wider price increases, to prevent expectations of future inflation from becoming unstable.

It stressed the importance of continuing broader reforms, including developing and carrying out a medium-term revenue strategy. This would help maintain government revenue, make the tax system more efficient and fair, and give investors greater certainty about tax policy.

The IMF also called for stronger management of public investment and action to remove obstacles delaying capital spending, including recovery and reconstruction work linked to Cyclone Ditwah.

Greater exchange rate flexibility remains important for absorbing shocks and building foreign reserves, it said.

The Fund also stressed the need to preserve the integrity of Sri Lanka’s anti-corruption legal framework to strengthen public trust.

It said stronger economic growth that benefits more people would require easing trade restrictions, modernising business and labour regulations, widening access to finance, developing digital public infrastructure and addressing infrastructure gaps.

The IMF team visited Sri Lanka from September 10 to 23, 2026, and later held virtual discussions with Central Bank Governor Dr. P. Nandalal Weerasinghe, Treasury Secretary Dr. Harshana Suriyapperuma, Senior Economic Advisor to the President Duminda Hulangamuwa and other senior officials to finalise the staff-level agreement.