Transcript

December 19, 2025

 

Participants: 

Evan Papageorgiou

Mission Chief for Sri Lanka

 

Martha Tesfaye Woldemichael,

Resident Representative for Sri Lanka

 

Moderator:

Randa Elnagar

Senior Communications Officer

 

TRANSCRIPT

MS ELNAGAR:: Good evening, everyone who is joining us from Sri Lanka and Asia and good afternoon to those joining us here in DC. This is the press briefing on Sri Lanka’s request for a Rapid Financing Instrument. I am Randa Nagar of the International Monetary Fund’s (IMF) Communications Department. By now you should have received the press release and we also just pushed out the staff report and posted it online, so you should have access to the documents. Let me start by introducing our speakers today. I have with me Mr. Evan Papageorgiou, Mission Chief for Sri Lanka; and Martha Tesfaye Woldemichael. She is the IMF's resident representative in Colombia. Evan is going to start by giving some opening remarks and then we're going to take your questions. Please try to keep yourself muted, your camera on, and raise your hand when you're ready to ask the questions. Without further ado, Evan, over to you.

MR PAPAGEORGIOU: Thank you, Randa. Good evening to everyone in Sri Lanka and thank you for joining us today for this important press conference. I am grateful for the opportunity to speak with you at this critical moment for the country. Today I'm here to share the outcome of the IMF Executive Board meeting that ended a short while ago the IMF board just approved emergency financial support for Sri Lanka under the rapid financing instrument, amounting to about 206 U.S. dollars. This decision comes in response to the catastrophic Cyclone Ditwa, which struck the country on November 28th, claiming more than 600 lives, displacing over 100,000 people and affecting millions more. The cyclone has devastated homes, infrastructure and livelihoods across the nation, and our thoughts are with all those who have suffered loss and hardship. The IMF emergency support will help Sri Lanka address urgent balance of payments, needs and fiscal pressures arising from the disaster. The government responded swiftly with a comprehensive relief package, including direct support to affected families, restoration of critical infrastructure, and measures to protect the most vulnerable. The authorities’ strong fiscal performance in 2025 has provided a foundation for this response, and this morning the parliament approved the enactment of the 2026 supplementary budget, which authorizes an additional 500 billion rupees. To address the urgent need for relief and reconstruction, the supplementary budget will help bridge the gap between immediate humanitarian needs and the longer term reconstruction efforts. It is important to recognize that the cyclone struck as Sri Lanka is emerging from a deep economic crisis.

The IMF’s supported reform program under the Extended Fund Facility has begun to bear fruit with robust economic recovery, price stability and progress in rebuilding foreign exchange reserves, revenue-based fiscal consolidation and public financial management reforms have strengthened fiscal discipline and mitigated risks. Debt restructuring has delivered substantial relief and has placed public debt on a path to sustainability. However, the economy remained fragile and GDP has not yet returned to its pre-crisis level. Given the scale of the disaster and the time needed to fully assess its impact, the fifth review under the EFF has been deferred. The IMF will field the mission to Sri Lanka in early 2026 to resume discussions on how the program can best support recovery and reconstruction efforts, while preserving the objectives and policy priorities that have underpinned the recent progress. The economic impact of Cyclone Ditwa is significant and still unfolding, while it is still early to have an assessment with a reasonable degree of confidence the economic activity is likely to be affected in the short term. Agriculture and tourism are key sectors in Sri Lanka's growth and are being hit the hardest. Inflation is likely to rise due to supply disruptions, and the current account deficit will likely widen over the next year.
The government's relief measures, supported by the IMF and other development partners, should go some way to addressing these challenges and should lay the groundwork for recovery. In the short term, the authorities need to accommodate the significant natural disaster and not to help those affected the most.
And protect lives and livelihoods. So, to that end, the authorities need to ensure that emergency spending is efficient, well targeted and transparent. All emergency spending should be executed in full compliance with the Public Financial Management Act and supported by enhancing monitoring and regular public reporting in line with transparency and accountability standards, the Central Bank of Sri Lanka should continue to refrain from monetary financing of the budget. Looking ahead, steadfast implementation of reforms will be crucial to restoring macroeconomic stability and support. Supporting Sri Lanka's recovery, public investment management reforms will help prioritize reconstruction projects and ensure value for money. The Central Bank has announced measures to support affected borrowers and stands ready to provide liquidity support to the financial system if necessary.

 

From our side, I will stress that the IMF stands with the people of Sri Lanka during this difficult time. We remain committed to supporting the country's recovery and reconstruction efforts. We are working closely with the authorities to understand how we can help and how to complete an extra view under the EFF program as soon as possible. Our shared objectives remain restoring fiscal and debt sustainability while protecting the vulnerable, safeguarding price and financial sector stability, rebuilding external buffers, strengthening governance and advancing growth oriented structural reforms. Let me conclude by commending the Sri Lankan government and the Central Bank of Sri Lanka for their swift and decisive response to the disaster. I will say one last time that the IMF remains dedicated to supporting Sri Lanka and safeguarding its hard won gains and navigating the road ahead. Thank you for your attention and Martha and I look forward to your questions. Thank you.

MS ELNAGAR: Thank you, Evan. We will take your questions. Please raise your virtual hand. If you're not speaking, please mute your mic. We're going to be bundling your questions, so we're going to take two at a time. Kindly keep your camera on when you're asking your question unless there's a technical issue.
I will start with the person who raised their hand, please identify your name and organization.

QUESTIONER: Thank you, Martha. Thank you, Evan. I have three questions. The first is will the IMF be looking for any assurances from the Sri Lankan government for this facility and what are the conditions in place in accessing the facility and the funds? And thirdly, many argue that this facility will add more financial constraints on the debt-ridden country right now. What is your opinion on that? Thank you.

MS ELNAGAR: Please try to limit your questions to one question so we can take as many questions as we can and then we can take another round. Thank you, over to you.

QUESTIONER: Yes, I would like to know Evan and thank you Randa for your time. Has the Sri Lanka government formally requested an augmentation on the program and that is partially the reason why you're deferring to the next review. I have another question, but I'll wait Randa.
Thank you.

MS ELNAGAR: Evan, are you OK to take these two now?

MR PAPAGEORGIOU: Of course. Thank you. You know, thank you. Thank you, folks. And these are good questions. So, OK, obviously, as I mentioned, today's Board meeting was about approving the emergency financing. And yes, exactly that this has also meant, but we are deferring in coordination with the authorities, we are deferring the review of the regular EFF, the Extended Fund Facility Arrangement of Sri Lanka with the IMF. The immediate access to the RFI gives to the country about 206 million U.S. dollars as I mentioned and so that goes a long way into bridging the gap, I mean the financing gap until we are able to re-engage and come back to the country and find a way to continue under the existing arrangement. The RFI is meant to provide prompt financial assistance to any IMF member country. So to the first question about assurances, this is a requirement and a justification of an urgent BOP, balance of payment need, which if were to be unaddressed, would result in an immediate and severe economic disruption. So the RFI, the Rapid Financing Instrument, will provide crucial budget support to finance disaster response, including the restoration of essential services, macrocritical infrastructure repairs and emergency assistance to those affected. Now it's important to understand that the RFI is a single disbursement, so one of disbursements. So today's Board meeting did just that. There are no other purchases or disbursements after this. And as such, there's also no review or program conditionality, unlike the EFF, which is an ongoing and longstanding engagement with the country.

In the case of RFI, there can be prior actions, but in the case of Sri Lanka, because we have such a close contact and we know Sri Lanka's case very well, those prior actions do not apply in terms of requesting augmentation and what lies ahead. So I will say that this will be a, you know, the 5th review has been deferred to the next year. So, we will visit Sri Lanka in early 2026 to resume discussions. There are many things that will be discussed under the next set of engagements and meetings. So of course what you can understand a significant natural disaster and a significant events Cyclone Ditwa and the damages requires a very careful understanding of all these effects on program parameters on economic policies and how would the reforms that have already been planned for the objectives and priorities, how would they fit into the next phase of the of the program? So, augmentation is also part of that discussion and that should be considered. At the same time as those are requests. So, we will have more to say when we come back and we have a greater chance to discuss issues in greater detail. Of course, very important again here is to understand the post disaster needs. Through the rapid assessment of the World Bank is performing, as well as the post disaster needs assessment that the authorities are jointly with the UN are attempting at the moment. Thank you.

MS ELNAGAR: Thank you, Evan. If you're done, can you lower your hand? And we're going to go now to questioner number three, go ahead.

QUESTIONER: Thank you, Randa. Now there is per the fiscal management, there is a limit on the expenditure for 13%. How does it go with the additional budget for reconstruction? Is there any need of change in the act to accommodate this. Thank you.

MS ELNAGAR: Please go ahead.

QUESTIONER: Hi, thank you, Randa. Evan, I'd like to ask, you know, we've discussed fiscal stabilities, that sustainability and the way this reality that millions of Sri Lankans are now affected by Ditwa. Could this translate into additional tax burdens or spending cuts for ordinary citizens and with the fifth review now deferred, what risks do you think Sri Lanka faces if recovery from the cyclone is slower than expected and how flexible is the IMF prepared to be?

MR PAPAGEORGIOU: Thank you. So in with regards to the spending limit on the expenditure on 15% of GDP, so that is a comes in the form of a fiscal rule that the country's own PFM has dictated. It is important to understand that any such fiscal rule has escape clauses that allow the country to deviate temporarily, to deviate temporarily from these limits and allow the country to the ability to respond in cases like the situation they find themselves in now with on the back of a significant natural disaster, there are of course very well defined processes to do such a thing, and the authorities know we are actually in close communication with them in justifying the need, which of course in this case is obvious; and laying out the next steps on how to proceed. So just to very quickly answer the question then, no, there is no need to change the law or the limit itself because the law and the act is flexible enough to allow for accommodation of additional spending as needed. On the issue of tax burden and expenditures and so on, this is something again, this is early days. It takes a while for all this discussion, the policy discussions to take shape and see what lies ahead, the first priority for the authorities and for the government. You know, and as early as you know, the few days after we reconnected was to support those who have the greatest needs. That means spending where it's necessary, creating, you know, promoting the emergency response and disaster relief, stabilizing the economy as quickly as possible and creating the conditions to put the economy back on a steady footing. Beyond that, there will be a lot of discussions about how do you reprioritize the existing projects. But the 2026 budget was encompassing. How would spending for other items would have to be executed and what would be the priorities as the time goes on natural disasters have a significant impact on growth initially and as well as a fiscal health. In this case we're talking about a significant shock that needs to be accommodated, but it needs to be examined continuously and with you know a good understanding of what does it entail for economic growth and fiscal sustainability and their sustainability. These are all things we will be discussing. We're actively discussing already with the government, with the authorities, and we will continue discussing as we re-engage in early 2026, in our next discussions. So, there are risks as you mentioned. That's something that we are looking at very carefully. We are paying very close attention. We are there for Sri Lanka. We understand the issues and we try to do as much as we can. We think that for the time being the initial response has been good to try to help those in need and then more needs to go from there and so the risks will be path dependent. Depending on what how this support plays out and how much more of this economic fallout can be addressed quickly. Thank you. Back to you, Randa.

MS ELNAGAR: Thank you, Evan. Our next question about the conditions and how flexible you have already answered this. So, I'm going to skip this and go now to first question here.

QUESTIONER: Is the money going into the central bank or the finance ministry? And also do you expect GDP, any kind of shock on the GDP from your projection or will the initial shock be cancelled by the recovery.

QUESTIONER: Hi, I just wanted to follow up on the deferment of the EFF’s 5th review with the mission visiting in 2026. Is there any timeline you can provide on how soon the next tranche of disbursements is likely to take place; and also are you able to share when you're planning to visit in early 2026? Any details would be quite appreciated. Thank you.

MR PAPAGEORGIOU: OK. So, the first question about where does the disbursement go. So obviously that is up to the authorities that that is a discussion we had with the authorities. We discussed both with the central bank and with the government and the ministry exactly on where would the disbursement from the RFI would be most helpful. As you can understand, the greatest needs at the moment are around the budget and budget support and so we have all agreed that. In this case, the RFI should be used for budget support, so the allocation will end up with the Ministry of Finance. So, this is a bit of a technical process. Of course it has to go to the central bank first, but then that will be passed on to the Ministry of Finance.

For the question about the growth and what the effects of that would be. So again, these are early days, so this is something that we have to very carefully think and examine particularly with how the response also plays out. We think that you know there's a very large degree of uncertainty and I hope you can understand this. It is very important for us to gauge a lot of high frequency indicators and issues, you know, numbers such as tourism arrivals or electricity consumption or things that could show quickly how quickly the activity is bouncing back. Now our preliminary estimate, and that I have to caution the word preliminary, is that growth will likely take a hit in the short term. Now short term could mean perhaps 1/4 could perhaps mean even be even less. But we cannot really equate the growth rate with the economic loss, because economic loss is clearly going to be very, very important.
And they're going to be sizable. And so how these are accommodated and what sort of response is being is going to be put forward will determine the growth rate. But so the growth rate itself is not a full picture. As you can understand construction is likely to support growth during the rebuilding phase and.
Because of the size of the economic damage, this is likely to add to GDP considerably. But that doesn't mean, of course, but the economy doesn't the country hasn't had a severe economic shock. In addition to that, we project higher inflation, at least for the short term, again due to shortages in selected food items.
And some supply chain disruptions from damaged infrastructure and you know, import control and import ability. Now equally important news of the external balance, we think that the current account deficit is likely to widen at least for the next, you know, 6 to 12 months due to the increased food and infrastructure.
Import needs the lower agricultural exports and potentially some reduced tourism earnings. So that will need to be calibrated, of course, because a lot of things can play out differently. We have taken good notes that the tourism sector, tourism industry has gone out of our way to try to repair as quickly as possible and invite tourism back into the country, which is very positive. And of course, higher remittances are expected to partially offset some of these pressures on the current account, and we look forward to seeing this final.

 

On the question about the 2026, yes, that's very well noted. Of course, I understand that you would like us to comment more on this, but this is something that we have to be very careful in finding the right time and the right mode. Of course, we are very eager to come. We have committed and I'll say it again, we are going to be there in 2026 as early as possible. This is something that we are prioritizing our full team is getting ready and there's quite a lot of work behind all the infrastructure that we need to put in place for us to come in and re-engage with the authorities. But I will assure you that this is very much in the works and we look forward to coming and finding the conditions and the solutions that the country needs to move forward.

MS ELNAGAR: Thank you, Evan. If you have asked the question and are already done, please lower your hand if you don't have further questions.

QUESTIONER: Evan is there clarity this time on the effective rupee depreciation and things like time-based surcharges are affected because there was some concern from a prominent think tank that considering whether this was the best option in terms of interest for Sri Lanka at this time. So, if you could comment on that.

MS ELNAGAR: Evan, did you get that question?

 

MR PAPAGEORGIOU: Yeah, I think I got the gist of it. But yes, I couldn't hear you in the beginning, but I think I know what you mean. Thank you. Yes.

 

QUESTIONER: Considering the emergency related fiscal pressure Sri Lanka is facing, how does the IMF view the continuation of the program? Will it proceed as plan or could there be flexibility in timelines and conditions?

MR PAPAGEORGIOU: Thank you for this question. Sri Lanka is obviously having an ongoing debt restructuring. There is an IMF supported EFF program and so the RFI disbursement that I just discussed is on top of the existing program. So, this is new support that we are providing. So obviously as assessed in the 4th review, I wish I could speak about the 5th review, but obviously this has not been judged. Sri Lanka's debt sustainability is expected to be restored. On a forward-looking basis following the completion of the debt restructuring and as you also know this there has been ongoing progress and things are proceeding in a in a good manner. What I can tell you about this 206 million USD. Disbursement from the from the rapid financing instrument is that it will not undermine Sri Lanka's good progress toward the sustainability as it will it will increase Sri Lanka's IMF credit commitment by a relatively small amount. This is 26% of quota, so 200 million, roughly 200.
Million USD, which is about 0.2% of GDP. This is a very small amount. So I would instead, you know, point to the catalytic effect that this access can have because this ensures that the authority's response can be augmented and. There is quick access to additional financing not only from the IMF but also from other development partners as well as bilateral donors and that's very important, so. There is a signal effect that's very important. Now it is also important to note that the repayment if we can discuss a little bit about the issue of the RFI itself, first of all there is a very well understood reason why we did this. The RFI is a faster instrument to deploy. In the case of the EFF because of the significant effect of the cyclone, the EFF was nearing completion when the cyclone struck, it requires evaluation of the EFF parameters and how can the EFF best support Sri Lanka's recovery, and so the EFF could not be completed. So, we think a good intermediate step is to have the RFI, the rapid financing instrument.
Now the RFI, the repayment of the RFI has a grace period of 3 and ¼ years and it starts to get repaid up to five years after that. So the applicable RFI lending rate is almost the same as the EFF, the basic rate of charge right now. By the way, that's determined weekly. Right now for the week of December 15th to 21st, where we are now is 3.274%, which is the SDR interest rate plus a fixed margin which is a standard for every member. And then so this number is already very low. The 3.28%-3.27% is already very low. There are surcharges on top of that, but there are surcharges actually kick in only after a period of time. They are level based. The surcharges include apply to only a small part of the country's access of a specific quota and they are time based. If the credit for example of the country’s accesses is above 300% of quota for more than three years, then the surcharges gets applied. So in other words, it is important to clarify that there are a lot of conditions before the surcharges kick in, and even with these surcharges, the cost from borrowing from the RFI from the IMF is lower than the country borrowing in the primary market, and because the repayment period is long, the it is superior to borrowing in a two or three-year domestic dollar bond which would entail higher cost of financing. And higher refining refinancing risk. I hope this is clear.  

 

On the other question about the continuation of the program. Yeah, so this is obviously the EFF is fairly flexible in how we think about what the EFF tries to achieve, of course there is, as you all know, there's a very well understood set of pillars that drive the set of reforms that are attached to it and the conditionality. But with each review and each time we come and see the country authorities, obviously in this case even after the cyclone. Nothing will change because there will still be a considerable discussion in how we will, we will, we will adopt or adapt the EFF on these external circumstances. Of course, now the importance of accommodating the cyclone response is very important. This is something that obviously we're working actively. So, the continuation of the program is something that we will be discussing very actively. This is something that the authorities are very eager to hear from us and continue. They have already shown the strong commitment to the deliverables.
The program and our expectation is when we come, we will be discussing about how to move, how best to move forward under the current program or to have a ways of helping the country more under, you know, the circumstances that we can.

 

MS ELNAGAR: We have one minute left, I have three hands raised, and we have a question in the chat. I'll take the question in the chat, and we are going to take one more question. Evan. So, from a questioner he is asking if the IMF is playing any role in the upcoming donor conference next month in Colombo for the rebuilding fund? And then we will take one more question and I'm going to go in order here. So, go ahead.

QUESTIONER: Thanks, Randa. Very. Yes, thanks once again. Beyond emergency financing, Evan, I want to understand whether the IMF is considering integrating disaster resilience and preparedness into Sri Lanka's economic reform framework going forward.

MR PAPAGEORGIOU: OK. So, on the question on the donor conference, obviously we take positive note of this fact. So that's very important and we think the authorities are taking the appropriate steps in mobilizing support from the international community. I should take a moment here to acknowledge that it's not just the IMF that has expressed strong interest in helping and offering our assistance, but also many other, you know, multilateral institutions as well as bilateral donors and partners and I think that will continue. So obviously the RFI disbursement and the upcoming resumption of the of the of the discussions under the FF sort of underline how we tend to play a catalytic role, how we see our role in this donor conference if you will and not just in January, but at any point in time when we come and we discuss with everybody on the ground. So, then we want to continue engaging and showing that the authorities are doing everything in their power to help the economy restore and achieve again resilient growth. And so that will continue sending the positive signal us coming, and I think that that Sri Lanka remains committed to macroeconomic stability and bouncing back. So, on the question about climate resilience and you know beyond the disaster assessment, so obviously that's something that we always do and I will give you an example. Not too long ago in July of 2025, it's a few months ago, we had a PIMA mission, Public Investment Management Assessment mission coming into the country and doing a climate PIMA climate assessment and recommending to integrate climate resilience into public investment planning. And this is very important because if anything, this PIMA, these recommendations of this exercise should be featured front and center in how the reconstruction and the new investment has to be laid out. So, in line with recommendations, the authorities are currently developing an appraisal and prioritization methodology that it will incorporate climate resilience criteria to ensure that future public investment is better equipped to withstand the natural disasters and that has many levels and many strata that needs to be to be laid out. So, you know as simple as how do you decide where new projects are needed, and you know as complicated as having a new unified building code throughout the country.
We also explore our reforms to strengthen Sri Lanka's climate resilience and disaster risk financing. And there we are working very closely with our colleagues at the World Bank, which have a lot of experts and have spent a lot of time on this. Thank you. Randa, over to you. Thank you.

MS ELNAGAR: Thank you, Evan. Are you OK to take one more question or are we quite OK at this point? One last question, please.

MR PAPAGEORGIOU: I would.

QUESTIONER: Thank you. Just to clarify, when you say discussions, are you renegotiating the staff level with new targets and is there any if like a 1 1/2% extra spending, is there any plan to get back on track? Or can we just take it on the run?

MR PAPAGEORGIOU: Yeah. So, you may have heard me say that before that every EFF review has a backward and a forward-looking component. So, in this case, you know already we have an EFF review, but now we're coming back to essentially redo the review, if you will, or discuss how we're going to proceed on these lines. So, there is a lot of discussions that need to be had. We need to assess obviously the very important issues. We have to assess the effect of the cyclone and how does this affect the 2025 position. Of course, 2025 is probably less relevant because the cyclone hit over the end of 2025. The fiscal picture was already very strong, so we don't think that 2025 will be affected. But of course it's 2026 that we have to be discussing and that brings us naturally to the forward-looking part of this assessment of the of the cyclone where we need to evaluate how the EFF can best support the country in its recovery construction efforts while preserving the objectives and the policy priorities on what you mentioned about QPCS and about numbers, that needs to be discussed when we when we come there because it's not just a number that we have in mind, right? Because a lot of these things that you can understand, there's a lot of updates on macro projections. And also we have to incorporate the amount of new spending needs that the authorities of the country needs. And so, everything will need to be done in tandem. So based on what we think is a good set of assumptions and you know, macroeconomic projections. And incorporating the spending needs of the country and where there need to be some sort of change in in conditionality, then that will inform the eventual targets. And these are done jointly or I guess you know in close collaboration with the authorities. We jointly agree what the authorities can achieve under the program. So, in other words we have a lot of work ahead of us. There is quite a lot of things that we all need to agree. I will stress and I said it before, the authorities have expressed the commitment to the program objectives. So, this is key because when you need to respond to a significant shock like the cyclone. You need to also preserve your fiscal sustainability and the good progress that has been made so far to restore that sustainability. And these are all the things we'll be considering. But thank you. That's a good question.

MS ELNAGAR: Thank you, Evan. Thank you very much and thank you to our participants today and thank you for staying up late to be with us. For those joining from Asia and specifically from Colombo. We are going to be posting the transcription for this press meeting by Monday. Thank you again and see you soon. Thank you, Evan and Martha.

MR PAPAGEORGIOU: Thank you.