IMF Executive Board Completes the Third Review Under the Extended Fund Facility Arrangement with Sri Lanka
IMF News, February 28, 2025
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- Published: February 28, 2025
Third Review Outcome and Financing
- The Executive Board completed the Third Review under the 48-month Extended Fund Facility (EFF) Arrangement.
- Immediate access to SDR 254 million (about US $334 million) was provided to Sri Lanka.
- This disbursement brings total IMF financial support disbursed so far to SDR 1.02 billion (about US$1.34 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 Reform Milestones
- 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.
- The recent successful completion of the bond exchange is identified as a major milestone towards restoring debt sustainability.
- Statement highlights:
- Reforms are bearing fruit; recovery has been remarkable.
- Inflation remains low, revenue collection is improving, and reserves continue to accumulate.
- By end-2024, Sri Lanka’s real GDP is estimated to have recovered 40 percent of its loss incurred between 2018 and 2023.
- Economic growth averaged 4.3 percent since growth resumed in the third quarter of 2023.
- Recovery is expected to continue in 2025.
Policy Recommendations and Priorities (as stated)
- Sustain the reform momentum to ensure macroeconomic stability and debt sustainability, and promote long-term inclusive growth.
- Sustain revenue mobilization to restore fiscal sustainability:
- Boost tax compliance.
- Refrain from tax exemptions.
- Meet social spending targets and continue reforms of the social safety net to ease economic hardship and promote inclusive growth with limited fiscal space.
- Restore cost-recovery electricity pricing without delay to contain fiscal risks from state-owned enterprises.
- Execute capital spending more smoothly within the fiscal envelope to foster medium-term growth.
- Finalize bilateral agreements with creditors in the Official Creditor Committee and with remaining creditors following the bond exchange.
- Monetary policy should:
- Prioritize maintaining price stability.
- Sustain commitment to prohibit monetary financing and safeguard Central Bank independence.
- Maintain exchange rate flexibility and gradually phase out balance of payments measures to rebuild external buffers.
- Resolve non-performing loans, strengthen governance and oversight of state-owned banks, and improve insolvency and resolution frameworks to revive credit growth.
- Address prolonged structural challenges, including steadfast implementation of governance reforms, to unlock long-term potential.
Economic Outlook and Key Projections (selected indicators)
- Real GDP growth:
- 2022: -7.3
- 2023: -2.3
- 2024: 4.5
- 2025: 3.0
- 2026: 3.1
- Inflation (average, Colombo CPI):
- 2022: 45.2
- 2023: 17.4
- 2024: 1.2
- 2025: 3.8
- 2026: 5.4
- 2027: 5.2
- 2028: 5.0
- GDP deflator growth:
- 2022: 47.5
- 2023: 17.5
- 2024: 3.5
- 2025: 4.9
- 2026: 5.5
- 2027: 5.3
- 2028: 5.1
- Nominal GDP growth:
- 2022: 36.6
- 2023: 14.8
- 2024: 8.2
- 2025: 8.1
- 2026: 8.7
- 2027: 8.5
- 2028: 8.4
- 2029: 8.3
- Public finance (percent of GDP):
- Revenue and grants: 2022: 11.1; 2023: 13.7; 2024: 15.1; 2025: 15.3; 2026: 15.2
- Expenditure: 2022: 18.6; 2023: 19.4; 2024: 19.3; 2025: 20.4; 2026: 19.8; 2027: 19.2; 2028: 19.1; 2029: 19.0; 2030: 18.8
- Primary balance: 2022: -3.7; 2023: 0.6; 2024: 2.2; 2025: 2.3
- Central government balance: 2022: -10.2; 2023: -8.3; 2024: -5.6; 2025: -5.4; 2026: -4.6; 2027: -4.0; 2028: -3.8; 2029: -3.5
- Central government gross financing needs: 2022: 34.1; 2023: 22.1; 2024: 22.8; 2025: 19.7; 2026: 15.7; 2027: 13.2; 2028: 11.8; 2029: 11.6
- Central government debt: 2022: 115.9; 2023: 109.5; 2024: 99.5; 2025: 105.7; 2026: 106.4; 2027: 103.5; 2028: 100.2; 2029: 97.0; 2030: 93.9
- Public debt 2/: 2022: 126.3; 2023: 115.8; 2024: 104.6; 2025: 110.7; 2026: 110.9; 2027: 107.4; 2028: 103.7; 2029: 100.1; 2030: 96.8
- Money and credit (percent change, end of period):
- Reserve money: 2022: 3.3; 2023: 10.3; 2024: 9.7
- Broad money: 2022: 15.5; 2023: 7.3; 2024: 10.0
- Domestic credit: 2022: -1.2; 2023: 6.1; 2024: 2.8; 2025: 4.0; 2026: 4.3
- Credit to private sector: 2022: 6.4; 2023: 7.9; 2024: 7.5; 2025: 9.5; 2026: 9.4
- Credit to private sector (adjusted for inflation): 2022: -38.8; 2023: -18.2; 2024: 6.6; 2025: 4.1
- Balance of Payments (in millions of U.S. dollars):
- Exports: 2022: 13,107; 2023: 11,911; 2024: 12,772; 2025: 13,446; 2026: 14,090; 2027: 14,795; 2028: 15,638; 2029: 16,397; 2030: 17,192
- Imports: 2022: -18,291; 2023: -16,811; 2024: -18,841; 2025: -21,718; 2026: -22,668; 2027: -23,410; 2028: -24,105; 2029: -25,109; 2030: -26,026
- Current account balance: 2022: -737; 2023: 2,582; 2024: 1,824; 2025: -409; 2026: -538; 2027: -751; 2028: -864; 2029: -952; 2030: -922
- Current account balance (in percent of GDP): 2022: 4.2; 2023: 1.7; 2024: 1.6; 2025: 1.5; 2026: 1.3
- Gross official reserves (end of period, in millions of U.S. dollars):
- 2022: 1,898; 2023: 4,392; 2024: 6,122; 2025: 7,056; 2026: 9,303; 2027: 13,118; 2028: 14,710; 2029: 14,875; 2030: 15,175
- In months of prospective imports of goods & services: 2022: 2.4; 2023: 2.9; 2024: 5.9
- In percent of ARA composite metric: 2022: 16.6; 2023: 37.5; 2024: 50.3; 2025: 58.3; 2026: 75.4; 2027: 108.8; 2028: 108.5; 2029: 108.7
- Usable Gross official reserves (end of period) 3/: 2022: 462; 2023: 2,956; 2024: 4,686; 2025: 25.3; 2026: 38.5
- External debt (public and private, in billions of U.S. dollars):
- 2022: 57.4; 2023: 54.1; 2024: 53.9; 2025: 54.9; 2026: 57.2; 2027: 61.2; 2028: 62.9; 2029: 63.3; 2030: 65.6
- As a percent of GDP: 2022: 77.0; 2023: 64.1; 2024: 54.4; 2025: 56.1; 2026: 65.9; 2027: 64.0; 2028: 60.4; 2029: 58.9
- Memorandum items:
- Nominal GDP (in billions of rupees): 2022: 24,064; 2023: 27,630; 2024: 29,893; 2025: 32,309; 2026: 35,123; 2027: 38,113; 2028: 41,343; 2029: 44,819; 2030: 48,551
- Exchange Rate (period average): 2022: 322.6; 2023: 327.5; 2024: 302.0
- Exchange Rate (end of period): 2022: 363.1; 2023: 323.9; 2024: 293.0
Source: IMF Executive Board press release, February 28, 2025.
