Press Briefing Transcript: Staff Level Agreement on the Fourth Review of Sri Lanka’s Reform Program Supported by the IMF’s Extended Fund Facility Arrangement

IMF News, April 29, 2025

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Press Briefing Transcript: Staff Level Agreement on the Fourth Review of Sri Lanka’s Reform Program Supported by the IMF’s Extended Fund Facility Arrangement

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• Published: April 29, 2025

Summary of staff-level agreement and conditions

• Staff-level agreement reached with Sri Lankan authorities on key economic policies toward concluding the Fourth Review of the EFF-supported program.
• The staff-level agreement is contingent on two conditions:
  • Implementation of prior actions relating to restoring electricity cost-recovery pricing and ensuring proper function of the automatic electricity price adjustment mechanism (the BSTA).
  • Completion of the usual financing assurances review by multilateral and bilateral partners.
• Upon successful implementation of these conditions and approval from the IMF Executive Board, Sri Lanka will unlock approximately USD $344 million in financing.

Program status and macroeconomic developments

• Program timeline and progress:
  • Sri Lanka is halfway through the four-year EFF program.
  • Debt restructuring is described as nearly complete.
• Growth and external position:
  • Real growth: 5 percent year-on-year real growth in 2024.
  • Gross official reserves: $6.5 billion in end of March 2025 (attributed to strong FX purchases by the Central Bank of Sri Lanka).
• Revenue performance:
  • Revenue to GDP: 13.5 percent in 2024, up from 8.2 percent in 2022.
• IMF assessment: Overall strong program performance with rebound in growth, advancing revenue mobilization, reserve accumulation, and ongoing structural reforms.

Key structural reforms and government commitments

• Electricity sector:
  • Prior actions required: restore electricity cost-recovery pricing; ensure the automatic tariff adjustment mechanism (BSTA) functions properly.
  • The continuous structural benchmark on electricity cost recovery pricing remains unmet; the April tariff revision meant for Q2 was not implemented.
  • Restoring cost-recovery pricing is framed as essential to minimize fiscal risks, enable electricity infrastructure investment, and avoid contingent liabilities building up at the CEB.
• State-owned enterprises (SOEs) and governance:
  • Program commitments include strengthening SOE governance, resolving legacy SOE debt, and implementing cost-recovery pricing to preserve SOE viability.
  • Specific measures under the program:
  • Indicative targets setting ceilings on total and foreign-currency treasury guarantees for SOEs.
  • Refrain from new FX borrowing by non-financial SOEs that already have limited FX revenue.
  • Publish audited financial statements for the 52 largest SOEs in a timely manner.
• Sri Lankan Airlines:
  • Authorities preparing a medium-term strategic plan to restore operational viability and resolve legacy debt.
  • Budget 2025 has set aside 20 billion rupees to pay off some of the airline’s debt.
  • Sri Lankan Airlines has hired a financial advisor to restructure its international bond.
  • IMF view: steps are in the right direction but need to pick up pace.

Fiscal policy, revenue risks, and contingencies

• Importance of sustained revenue mobilization and prudent budget execution to preserve fiscal space and respond to shocks.
• Tax policy and administration:
  • The tax exemption framework should be well designed to reduce fiscal costs and corruption risks while enabling necessary growth.
  • Reforms to boost tax compliance are emphasized to deliver revenue gains without additional tax measures.
• Vehicle import-related revenue in Budget 2025:
  • The lifting of the import ban on motor vehicles is expected to yield 1.2 percent of GDP in 2025 and accounts for about 80 percent of the 1.5 percent of GDP revenue package.
  • Monitoring data cited: letters of credit around USD $350 million opened for motor vehicle imports.
  • IMF notes authorities’ commitment to contingency revenue measures if underperformance occurs.

Trade shock, labor tariffs, and downside risks

• Trade policy shock:
  • A 44 percent tariff on Sri Lanka was announced on April 2nd (U.S. labor tariff); a 90-day pause was subsequently announced to allow constructive engagement with the United States.
  • Exports exposure: apparel and rubber industries account for a very large share of exports to the United States — described as "almost three-quarters, or over 70 percent."
  • Apparel employment: "over 300,000 workers or 320,000 workers" cited for the apparel industry (text presents both formulations).
• IMF stance and contingency planning:
  • Global trade policy uncertainty is identified as a significant downside risk.
  • If risks materialize, IMF will work with authorities to assess impacts and formulate policy responses within the existing program framework.
  • Authorities have committed to addressing underperformance or deviations from program targets with remedial measures.
• Timing for review completion and outlook adjustment:
  • The staff expects the finalization of the Fourth Review will take additional time for discussions and analysis—"maybe a couple more months at least" and suggested "by, let's say, June" as a tentative horizon for more news.

Technical assistance and multilateral engagement

• Electricity regulator technical assistance:
  • IMF stated there is no technical assistance from the IMF at the moment specifically on electricity price generation or regulator capacity; other development partners such as the World Bank and ADB are providing technical assistance to Sri Lanka in the electricity sector.
• Ongoing coordination:
  • IMF maintains frequent contact with authorities, including daily discussions and weekly monitoring meetings, and notes ongoing engagement with bilateral partners to secure financing assurances.

Key statistics and exact figures cited

• Unlocking financing: approximately USD $344 million.
• EFF program: four-year arrangement; Sri Lanka is halfway through.
• Real growth: 5 percent year-on-year in 2024.
• Revenue to GDP: 13.5 percent in 2024; 8.2 percent in 2022.
• Gross official reserves: $6.5 billion in end of March 2025.
• Budget allocation for Sri Lankan Airlines debt: 20 billion rupees.
• U.S. tariff announced: 44 percent (announced April 2nd); 90-day pause subsequently announced.
• Apparel industry employment: "over 300,000 workers or 320,000 workers."
• Expected yield from motor vehicle import liberalization: 1.2 percent of GDP in 2025; represents about 80 percent of the 1.5 percent of GDP revenue package.
• Letters of credit for vehicle imports cited: around USD $350 million.
• Timeline estimate for completing Fourth Review: "maybe a couple more months at least" / "by, let's say, June."

Press Briefing Transcript: Staff Level Agreement on the Fourth Review of Sri Lanka’s Reform Program Supported by the IMF’s Extended Fund Facility Arrangement — April 29, 2025 — IMF Communications Department

References

• Sri Lanka and the IMF
• United States and the IMF
• Technical Assistance -- A Factsheet
• Transcripts
• PRESS CENTER
• https://www.imf.org/en/home