IMF Staff Concludes Visit to Sri Lanka
IMF News, July 25, 2025
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- Published: July 25, 2025
Mission overview
- IMF mission led by Mr. Evan Papageorgiou, IMF Mission Chief for Sri Lanka, visited Colombo during July 21-25, 2025 to discuss recent macroeconomic developments and progress in implementing policies under the authorities’ economic reform program supported by the IMF’s Extended Fund Facility (EFF) arrangement.
- End-of-mission statement emphasizes that views are those of IMF staff and do not necessarily represent the IMF’s Executive Board. This mission will not result in a Board discussion.
- The timing of the Fifth Review of the EFF will be discussed with the government; progress on key program commitments will be formally assessed in that review.
Key economic findings and indicators
- Real GDP grew by 4.8 percent y/y in 2025Q1, outperforming expectations.
- Headline inflation was at -1.1 percent y/y in 2025Q2 and is gradually returning to target.
- Gross international reserves stood at US$6.0 billion at end-June 2025.
- Tax revenue collection continued improving, supported by strong performance in VAT and taxes on imported motor vehicles.
- Downside risks have increased owing to potentially high tariffs on Sri Lanka’s exports, persistent trade policy uncertainty, and heightened geopolitical tensions.
Policy priorities and recommendations
- Sustain reform momentum to safeguard macroeconomic stability, entrench the recovery, and build resilience to shocks amid trade policy uncertainty and geopolitical tensions.
- Fiscal policy and debt:
- Sustain efforts to raise fiscal revenues to maintain macroeconomic stability.
- To meet the medium-term primary balance objective of 2.3 percent of GDP, the 2026 budget should be underpinned by strong revenue measures and appropriate spending allocations consistent with program parameters.
- Strengthen tax exemption frameworks, boost tax compliance, broaden the tax base, and enhance public financial management to avoid reemergence of expenditure arrears.
- Upcoming bills on public-private partnerships, state-owned enterprises, public procurement, and public asset management should be consistent with the Public Financial Management Act and best practices.
- Accelerate progress toward operationalizing the Public Debt Management Office.
- Encourage swift completion of bilateral agreements with remaining official and commercial creditors to restore debt sustainability and regain investor confidence.
- Monetary and financial sector policy:
- Monetary policy should remain prudent and prioritize price stability.
- Safeguard central bank independence, including by refraining from monetary financing of the budget.
- Continue reserve accumulation and maintain exchange rate flexibility.
- 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.
- Energy and social policy:
- Maintain cost-recovery energy pricing to minimize fiscal risks and support financial sustainability of energy utilities.
- Protect the poor and vulnerable through improved targeting, coverage, and adequacy of social support.
- Governance and structural reforms:
- Steadfast implementation of governance reforms in the government’s action plan is critical to address corruption vulnerabilities.
- Advance structural reforms to liberalize trade and investment, increase competitiveness, boost female labor force participation, and address climate change to raise potential growth.
Stakeholder engagement
- IMF team met with: His Excellency President and Finance Minister Anura Kumara Dissanayake; Honorable Labor Minister and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando; Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe; Secretary to the Treasury Dr. Harshana Suriyapperuma; Senior Economic Advisor to the President Duminda Hulangamuwa; Chief Advisor to the President on Digital Economy Dr. Hans Wijayasuriya; other senior government and CBSL officials; and representatives from the private sector, civil society organizations, and development partners.
Press Release No. 25/264 — IMF Communications Department, July 25, 2025
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- Press Release-English