IMF Staff Country Reports

This paper presents Sri Lanka’s Third Review under the Extended Arrangement under the Extended Fund Facility, Financing Assurances Review, and Monetary Policy Consultation Clause. Performance under the program has been strong. All quantitative targets for end-December 2024 were met, except the indicative target on social spending. Most structural benchmarks due by end-January 2025 were either met or implemented with delay. Sustained revenue mobilization is crucial to restoring fiscal sustainability and ensuring that the government can continue to provide essential services. The recent successful completion of the bond exchange is a major milestone toward restoring debt sustainability. Reform efforts are bearing fruit with the recovery gaining momentum. As the economy is still vulnerable, sustaining the reform agenda is critical to put the economy on a path toward lasting recovery and debt sustainability. Prolonged structural challenges need to be addressed to unlock Sri Lanka’s long-term potential, including steadfast implementation of the governance reforms.