IMF praises Sri Lanka’s economic recovery, urges continued reforms

The International Monetary Fund (IMF) has commended Sri Lanka’s progress under its economic reform program, following a recent visit to Colombo by an IMF team led by Evan Papageorgiou from April 3 to April 11, 2025.

In a statement released today, Papageorgiou said Sri Lanka’s ambitious reform agenda under the IMF’s Extended Fund Facility (EFF) has produced “commendable outcomes.” He highlighted the country’s strong 5% economic growth in 2024, falling inflation, now at ‑2.6% as of end March 2025, and a boost in foreign reserves to US$6.5 billion, supported by significant central bank currency purchases.

He added that “substantial fiscal reforms” have helped strengthen public finances. However, he warned that global uncertainties and a recent external shock could pose new challenges for Sri Lanka’s still recovering economy. “More time is needed to assess the impact,” he noted, indicating that any adjustments will need to stay within the framework of the existing IMF supported program.

The IMF urged Sri Lanka to maintain its reform momentum to protect the progress made so far and ensure long term stability and inclusive growth. Papageorgiou emphasized the importance of sustained revenue collection, sticking to the 2025 budget, and avoiding new tax exemptions that could undermine fiscal stability.

“Boosting tax compliance, including reinstating an efficient and timely VAT refund system, will help increase revenue without needing new taxes,” he said. He also stressed the need to restore cost recovery pricing in the electricity sector to reduce risks from loss making state owned enterprises.

The IMF noted that protecting the poor and vulnerable during this period is critical. It called on the government to enhance the effectiveness of social safety nets by improving targeting and coverage, while ensuring that support remains within the current budget.

On monetary policy, the IMF said that although inflation is currently low, continued monitoring is necessary to maintain price stability and build external reserves further.

Talks are still ongoing, and the IMF encouraged Sri Lankan authorities to make further progress on key reforms, including electricity pricing, tax exemptions, and other structural changes.

During the mission, the IMF team met with President and Finance Minister Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, Labor Minister and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando, Deputy Finance Minister Dr. Harshana Suriyapperuma, Central Bank Governor Dr. P. Nandalal Weerasinghe, Treasury Secretary K M Mahinda Siriwardana, Senior Economic Advisor Duminda Hulangamuwa, and other senior officials. They also held discussions with parliamentarians, private sector leaders, civil society representatives, and development partners.

Papageorgiou concluded by thanking Sri Lankan authorities for their cooperation and reaffirmed the IMF’s commitment to supporting Sri Lanka. “Discussions are continuing with the goal of reaching a staff level agreement soon, paving the way for the fourth review’s timely completion,” he said.

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