IMF Executive Board Completes the Fourth Review Under the Extended Fund Facility with Sri Lanka
IMF News, July 3, 2025
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- Published: July 3, 2025
Review outcome and financing
- The Executive Board completed the Fourth Review under the 48-month Extended Fund Facility (EFF) Arrangement.
- Immediate access to SDR 254 million (about US$350 million) was provided to Sri Lanka.
- Total IMF financial support disbursed so far under the arrangement is SDR 1.27 billion (about US$1.74 billion).
- The EFF arrangement was approved on March 20, 2023, in an amount of SDR 2.286 billion (395 percent of quota or about US$3 billion).
Program performance and policy actions
- Performance under the program has been generally strong with some implementation risks being addressed.
- Prior actions met:
- Restoring cost-recovery electricity pricing for the rest of 2025.
- Operationalizing automatic electricity tariff adjustment.
- Quantitative and structural target outcomes:
- All quantitative targets for end-March 2025, except the stock of expenditure arrears, were met.
- All structural benchmarks due by end-May 2025 were either met or implemented with delay.
- Inflation and debt:
- 2025Q2 inflation fell below the lower outer band of the Monetary Policy Consultation Clause largely due to energy prices.
- Debt restructuring is nearly complete.
- Policy recommendations and priorities (as stated by Mr. Kenji Okamura, Deputy Managing Director and Acting Chair):
- Sustained revenue mobilization to restore fiscal sustainability and create fiscal space.
- Strengthen tax exemption frameworks, boost tax compliance, and enhance public financial management to ensure effective arrears management.
- Improve coverage and targeting of social support to the vulnerable.
- Ensure smoother execution of capital spending within the fiscal envelope to foster medium-term growth.
- Maintain restoration of cost-recovery electricity pricing and operationalized automatic electricity tariff adjustment to contain fiscal risks.
- Finalize bilateral agreements with remaining official and commercial creditors in the debt restructuring process.
- Monetary policy should continue to prioritize price stability, eliminate monetary financing, and safeguard central bank independence.
- Increase exchange rate flexibility and gradually phase out administrative balance of payments measures to rebuild external buffers and resilience.
- Resolve non-performing loans, strengthen governance and oversight of state-owned banks, and improve insolvency and resolution frameworks to revive credit growth and support private sector development.
- Continue governance reforms and advance trade-facilitation reforms to boost export growth and diversification.
Data reporting issue, corrective actions, and waivers
- The Executive Board reviewed inadvertent provision of inaccurate data by Sri Lanka on the ceiling of the central government’s stock of expenditure arrears.
- Cause of inaccuracies:
- Weaknesses in the timely reporting of arrears by line ministries to the Ministry of Finance.
- A misunderstanding by the authorities of the definition of “arrears” under the Technical Memorandum of Understanding.
- Corrective measures taken by the authorities:
- Provided corrected data following detailed analysis of budget line appropriations.
- Undertook several corrective measures related to the clearing and reporting of arrears.
- Committed to improving reporting and data verification practices in line with IMF technical assistance and the new PFM law.
- Arrears repayments will be accommodated within the existing fiscal envelope.
- Executive Board decision:
- Approved the authorities’ request for waivers of non-observance related to the quantitative performance criterion that gave rise to noncomplying purchases.
- Decided not to require further action in connection with the breach of obligations under Article VIII, Section 5.
Economic outlook and risks
- The economic outlook is described as positive with strengthening growth, low inflation, accumulating reserves, and improving fiscal revenues.
- Downside risks have increased, notably from global trade policy uncertainties that could affect macroeconomic and social stability.
- If shocks materialize, authorities will work closely with IMF staff to assess impacts and formulate policy responses within the contours of the program.
- Steadfast program implementation is emphasized as crucial.
Sri Lanka: Selected Economic Indicators 2024-2027
- GDP and inflation (in percent)
- Real GDP: 2024 Est. 5.0; 2025 Projections 3.5; 2026 3.1; 2027 (blank)
- Inflation (average) 1/: 2024 Est. 1.2; 2025 Projections 3.3; 2026 5.2; 2027 (blank)
- Inflation (end-of-period) 1/: 2024 Est. -1.5; 2025 Projections 8.9; 2026 (blank); 2027 (blank)
- GDP Deflator growth: 2024 Est. 3.8; 2025 Projections 3.6; 2026 5.3; 2027 5.1
- Nominal GDP growth: 2024 Est. 9.0; 2025 Projections 7.1; 2026 8.5; 2027 8.4
- Savings and investment (in percent of GDP)
- National savings: 2024 Est. 25.2; 2025 Projections 21.8; 2026 22.2; 2027 22.9
- Government: 2024 Est. -3.2; 2025 Projections -2.0; 2026 -0.8; 2027 -0.1
- Private: 2024 Est. 28.4; 2025 Projections 23.8; 2026 23.0; 2027 (blank)
- National investment: 2024 Est. 27.0; 2025 Projections 22.1; 2026 22.5; 2027 4.3
- (Additional rows showing values 4.5, 4.6, 21.9, 17.4, 17.6, 17.9 appear in the table as presented.)
- Savings-Investment balance: 2024 Est. -1.8; 2025 Projections 0.0; 2026 0.1; 2027 0.4
- (Additional rows showing values -8.2, -6.3, -5.3, -4.6, 6.4, 5.4 appear in the table as presented.)
- Public finance (in percent of GDP)
- Revenue and grants: 2024 Est. 13.7; 2025 Projections 15.0; 2026 15.2; 2027 15.3
- Expenditure: 2024 Est. 19.3; 2025 Projections 20.5; 2026 19.7; 2027 19.2
- Primary balance: 2024 Est. 2.2; 2025 Projections 2.3; 2026 (blank); 2027 (blank)
- Central government balance: 2024 Est. -5.6; 2025 Projections -5.4; 2026 -4.5; 2027 -3.9
- Central government gross financing needs: 2024 Est. 22.6; 2025 Projections 19.6; 2026 14.9; 2027 (blank)
- Central government debt: 2024 Est. 100.5; 2025 Projections 105.1; 2026 103.4; 2027 100.2
- Public debt 2/: 2024 Est. 105.2; 2025 Projections 109.6; 2026 107.4; 2027 103.6
- Money and credit (percent change, end of period)
- Reserve money: 2024 Est. 15.8; 2025 Projections 6.5
- Broad money: 2024 Est. 8.6; 2025 Projections (blank)
- Domestic credit: 2024 Est. 4.0; 2025 Projections 3.0
- Credit to private sector: 2024 Est. 10.7; 2025 Projections 9.4; 2026 9.2; 2027 9.3
- Credit to private sector (adjusted for inflation): 2024 Est. 9.5; 2025 Projections 6.1; 2026 4.1
- Credit to central government and public corporations: 2024 Est. -1.4; 2025 Projections -3.3; 2026 -2.5
- Balance of Payments (in millions of U.S. dollars)
- Exports: 2024 Est. 12,772; 2025 Projections 12,880; 2026 13,490; 2027 14,194
- Imports: 2024 Est. -18,828; 2025 Projections -21,363; 2026 -22,447; 2027 -23,578
- Current account balance: 2024 Est. 1,746; 2025 Projections -48; 2026 -77; 2027 -439
- Current account balance (in percent of GDP): 2024 Est. 1.8; 2025 Projections -0.4
- Current account balance net of interest (in percent of GDP): 2024 Est. 3.7; 2025 Projections 2.1; 2026 2.0; 2027 1.7
- Export value growth (percent): 2024 Est. 7.2; 2025 Projections 0.8; 2026 4.7
- Import value growth (percent): 2024 Est. 12.0; 2025 Projections 13.5
- Gross official reserves (end of period)
- In millions of U.S. dollars: 2024 Est. 6,122; 2025 Projections 7,255; 2026 9,273; 2027 12,974
- In months of prospective imports of goods & services: (values shown in table)
- In percent of ARA composite metric: 2024 Est. 50.5; 2025 Projections 60.3; 2026 75.5; 2027 100.0
- Usable Gross official reserves (end of period) 3/: 2024 Est. 4,686; 2025 Projections 38.6
- External debt (public and private)
- In billions of U.S. dollars: 2024 Est. 53.9; 2025 Projections 54.6; 2026 56.3; 2027 59.9
- As a percent of GDP: 2024 Est. 54.4; 2025 Projections 55.1; 2026 58.6; 2027 59.4
- Memorandum items:
- Nominal GDP (in billions of rupees): 2024 Est. 29,899; 2025 Projections 32,036; 2026 34,754; 2027 37,664
- Exchange Rate (period average): 2024 Est. 302.0; 2025 Projections …
- Exchange Rate (end of period): 2024 Est. 293.0
Notes in source:
- 1/ Colombo CPI.
- 2/ Comprising central government debt, publicly guaranteed debt, and CBSL external liabilities (i.e., Fund credit outstanding and international currency swap arrangements). The debt statistics currently assume the external debt restructuring to have been completed at end 2023.
- 3/ Excluding PBOC swap ($1.4bn in 2022) which becomes usable once GIR rise above 3 months of previous year's import cover.
- [1] SDR figures are converted at the market rate of U.S. dollar per SDR on the day of the Board approval.
- [2] The authorities have consented to the publication of the Staff Report prepared for this consultation; the staff report will be shortly published on the www.imf.org/srilanka page.
Source: IMF Press Release No. 25/235, July 3, 2025.
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