IMF reveals what’s next for Sri Lanka’s bailout programme

The International Monetary Fund (IMF) says Sri Lanka’s economic reform programme has helped the country withstand the impact of the Middle East war, but warned that maintaining reform momentum will be critical to safeguard the recovery and ensure long-term stability. In a statement issued at the conclusion of an IMF staff visit to Colombo from June 24 to 30, the Fund said the conflict had weighed on Sri Lanka’s economy by pushing up inflation, slowing tourism growth and reducing the pace of foreign reserve accumulation. The IMF noted that headline inflation increased from 1.6 percent in February to 5.5 percent in May following energy price hikes. It said the Central Bank of Sri Lanka responded by raising policy interest rates by 100 basis points and introducing macroprudential measures, while the Government rolled out temporary relief measures including fuel, electricity and fertilizer subsidies, as well as cash transfers for vulnerable households. The IMF said Sri Lanka must continue implementing key reforms to preserve fiscal and external sustainability, including improving tax compliance, broadening the tax base, strengthening public financial management and accelerating reforms of state-owned enterprises. It also stressed the importance of maintaining cost-recovery energy pricing, improving social safety nets, strengthening debt management and ensuring monetary policy remains prudent and data-driven. The Fund further called for continued governance reforms, trade liberalisation, labour market reforms and improvements to the business environment to attract investment, create jobs and reduce poverty. The IMF said Sri Lanka’s progress under the IMF-supported Extended Fund Facility (EFF) programme will be formally assessed during the Seventh Review mission, which is expected to take place later this year, with the dates to be announced in due course. The IMF staff delegation, led by Evan Papageorgiou, met President and Finance Minister Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, Central Bank Governor Dr. P. Nandalal Weerasinghe and other senior government officials during the visit. (Newswire)