Colombo, Sri Lanka – September 23, 2026 – An International Monetary Fund (IMF) mission, led by Mr. Evan Papageorgiou, concluded its visit to Sri Lanka today, affirming the nation’s remarkable economic resilience amidst successive shocks while underscoring the critical need for unwavering commitment to prudent policies and sustained structural reforms. The team conducted discussions from September 10 to 23, 2026, focusing on recent macroeconomic developments, progress under the Extended Fund Facility (EFF) arrangement, and policy recommendations as part of the 2026 Article IV Consultation.
The mission held productive discussions with Sri Lankan authorities regarding the Seventh Review of the EFF and the 2026 Article IV Consultation. Discussions are set to continue in the near term with the objective of reaching an agreement on parameters and policies crucial for the timely conclusion of the Seventh Review.
Economic Resilience and Anchored Stability
In a statement issued at the close of the mission, Mr. Papageorgiou highlighted Sri Lanka’s robust economic performance. “Sri Lanka’s economy has proved remarkably resilient to successive shocks,” he stated. Key economic indicators cited include:
- Economic activity expanded by 4.2 percent in Q2 2026, marking eleven consecutive quarters of strong growth.
- Despite global oil price shocks pushing headline inflation to 8 percent year-on-year in August, inflation expectations remain broadly anchored.
- Gross official reserves have increased, reaching US$6.9 billion at end-August 2026.
- Banks continue to be well-capitalized and profitable.
- The fiscal outturn in H1 2026 was strong, and debt restructuring efforts are largely completed.
Navigating Downside Risks and Future Challenges
Despite these positive developments, the IMF cautioned that Sri Lanka continues to face significant downside risks. These include uncertainties surrounding the duration and intensity of the Middle East conflict, global trade policy shifts, and the potential impact of El Niño. “Safeguarding macroeconomic stability in a shock-prone environment requires unwavering commitment to prudent policies and reforms,” Mr. Papageorgiou emphasized, stressing the need to rebuild fiscal and external buffers, maintain price stability, and advance the governance agenda while fortifying social safety nets for the most vulnerable segments of society.
Key Policy Recommendations for Sustainable Transformation
The IMF team outlined several critical policy recommendations essential for Sri Lanka’s transition from stabilization to sustainable transformation:
Fiscal and Revenue Strategy:
- Developing and implementing a strong medium-term revenue strategy to sustain mobilization, improve efficiency, and ensure fairness of the tax system.
- Steadfast efforts to broaden the tax base and rationalize tax exemptions and incentives.
- Strengthening revenue administration to enhance tax compliance and support durable revenue gains.
- Upholding cost-recovery energy pricing to minimize fiscal risks from state-owned enterprises.
- Addressing bottlenecks in capital spending execution, particularly to accelerate cyclone Ditwah-related recovery and reconstruction efforts.
Monetary Policy and Price Stability:
- Monetary policy should remain vigilant to address inflationary pressures and ensure price stability within the medium-term flexible inflation targeting framework.
- Greater exchange rate flexibility is crucial for absorbing shocks and supporting reserve accumulation.
- It would be prudent to maintain the 5 percent inflation target and the current accountability band at the first statutory review, preserving flexibility amid volatility before considering a lower target in the future.
Structural Reforms and Governance:
- Preserving the integrity of the anti-corruption legislative framework is paramount to enhancing public trust. Concerns were raised that select clauses from recently tabled amendments could weaken transparency and accountability.
- Sustained momentum on structural reforms is vital to fostering an enabling business environment and attracting investment, including through trade liberalization, modernizing business and labor regulations, broadening access to finance, and advancing digitalization.
The IMF team also visited Jaffna, gaining firsthand insights into the economic potential of the Northern Province. Discussions with the private sector and civil society highlighted opportunities for growth and job creation through investments in connectivity, skills, and sectors such as agriculture, fisheries, tourism, and renewable energy, coupled with strengthened social protection.
High-Level Engagements and Continuing Dialogue
During their stay, the IMF team held extensive meetings with high-ranking officials, including His Excellency the President and Finance Minister Anura Kumara Dissanayake, Honorable Prime Minister Dr. Harini Amarasuriya, Honorable Labor Minister and Deputy Minister of Finance and Planning Prof. Anil Jayantha Fernando, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, and Secretary to the Treasury Dr. Harshana Suriyapperuma, among others. Meetings also included parliamentarians, representatives from the private sector, civil society organizations, and development partners.
The IMF reaffirmed its commitment to continue supporting Sri Lanka, with discussions ongoing towards reaching a staff-level agreement in the near term, which will pave the way for the timely completion of the Seventh Review of the EFF arrangement.
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