Colombo/Washington D.C., May 1, 2025 — The International Monetary Fund (IMF) has reached a staff-level agreement with Sri Lanka under the Fourth Review of its Extended Fund Facility (EFF), clearing the path for the release of approximately USD 344 million in funding. However, the IMF emphasized that the disbursement hinges on two unresolved issues: electricity sector reform and the slow pace of state-owned enterprise (SOE) restructuring.
Speaking at a press briefing, IMF Mission Chief Evan Papageorgiou acknowledged the country’s economic recovery and reform progress, including projected real GDP growth of 5% in 2024 and an improvement in the revenue-to-GDP ratio to 13.5% from 8.2% in 2022. Gross official reserves have also increased to USD 6.5 billion by the end of March 2025, driven by strong foreign exchange purchases by the Central Bank.
Despite these gains, the IMF stressed that Sri Lanka must first restore cost-recovery electricity pricing and ensure the full implementation of the automatic electricity tariff adjustment mechanism—both of which remain unfulfilled. Papageorgiou warned that delays risk deepening losses at the Ceylon Electricity Board (CEB), potentially making it a significant fiscal burden. “This is a core pillar of the program and critical to ensuring long-term financial sustainability,” he noted.
The second major concern is the lagging reform of state-owned enterprises, especially SriLankan Airlines. While the government has allocated LKR 20 billion to settle part of the airline’s debt and hired a financial advisor, the IMF called for a faster resolution. Broader reforms—including transparency, financial viability, and curbing exposure to foreign currency risk—remain essential to reducing fiscal vulnerabilities.
The IMF also acknowledged external risks, particularly the recent imposition of 44% U.S. tariffs on Sri Lankan apparel and rubber exports. These sectors represent over 70% of Sri Lanka’s U.S.-bound exports and employ hundreds of thousands. The IMF said it stands ready to support the government in crafting policy responses if the trade shock materializes.
Papageorgiou concluded by reaffirming the IMF’s commitment to Sri Lanka’s recovery, adding that the Fourth Review could be finalized in the coming months, provided the government meets the required conditions. “We’re halfway through the program. With sustained reform momentum, Sri Lanka is on the path to a robust and inclusive economic recovery.”
