Colombo, Sri Lanka – November 23, 2024: An International Monetary Fund (IMF) delegation, led by Peter Breuer, Senior Mission Chief for Sri Lanka, concluded its visit to Colombo from November 17 to 23, 2024, after engaging in productive discussions with Sri Lankan authorities. Following these deliberations, Mr. Breuer, along with Deputy Mission Chief Ms. Katsiaryna Svirydzenka, issued an official statement announcing significant developments.
The statement confirmed that the IMF team has reached a staff-level agreement with Sri Lanka on the third review of the 4-year Extended Fund Facility (EFF) arrangement. Approved on March 20, 2023, by the IMF Executive Board, the arrangement provides a total funding of SDR 2.3 billion (approximately USD 3 billion).
The staff-level agreement is contingent on two key conditions:
- The submission of a 2025 budget aligned with the program’s objectives.
- The completion of a financing assurances review, focusing on commitments from multilateral partners and adequate progress in debt restructuring to ensure timely conclusion in line with program targets.
Upon completing the IMF Executive Board review, Sri Lanka will gain access to SDR 254 million (around USD 333 million), increasing the total financial support disbursed under the arrangement to SDR 1,016 million (approximately USD 1,333 million).
Economic Progress and Program Performance
The statement highlighted Sri Lanka’s commendable progress under the EFF-supported reform agenda:
- The economy expanded by an average of 4% year-on-year in the four quarters ending June 2024.
- Inflation remained low, with headline and core inflation contained at 0.8% and 3.8%, respectively, during the third quarter.
- Gross official reserves rose to USD 6.4 billion by the end of October 2024, supported by significant foreign exchange purchases by the Central Bank of Sri Lanka (CBSL).
- Public finances have shown marked improvement following substantial fiscal reforms.
Sri Lanka met all quantitative performance criteria and indicative targets (ITs) for end-June 2024 and most ITs for end-September 2024, except for those on social spending. While most structural benchmarks were achieved or implemented with delays, some were deferred due to the election cycle.
Sustaining Reforms and Policy Continuity
The IMF emphasized the importance of maintaining the reform momentum to ensure economic stability and shared growth. The new government’s commitment to program objectives has bolstered confidence in policy continuity. However, sustaining macroeconomic stability and restoring debt sustainability require consistent fiscal discipline, enhanced revenue mobilization, and spending restraint.
Efforts to improve tax compliance and revenue administration, alongside the avoidance of new tax exemptions, are essential to reducing fiscal risks and ensuring adequate support for social spending. Measures to maintain cost recovery in fuel and electricity pricing, as well as addressing legacy debts, will further minimize fiscal vulnerabilities.
The IMF also stressed the need to protect the poor and vulnerable through improved social safety nets, particularly via the Aswesuma initiative. The government was urged to redouble efforts to meet the program’s social spending targets while enhancing the adequacy and coverage of these safety measures.
Debt Restructuring and Governance Reforms
Sri Lanka’s recent Agreement in Principle with bondholders marks a critical step toward achieving debt sustainability. The next phase involves completing commercial debt restructuring, finalizing bilateral agreements with official creditors, and implementing the terms of these accords.
The new government’s mandate offers a unique opportunity to advance governance reforms, mitigate corruption risks, and rebuild economic confidence, paving the way for robust and inclusive growth.
High-Level Engagement
During the visit, the IMF team engaged with several key figures, including:
- President and Finance Minister Anura Kumara Dissanayake
- Labor Minister and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando
- Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma
- Senior Economic Advisor Duminda Hulangamuwa
- CBSL Governor Dr. P. Nandalal Weerasinghe
- Secretary to the Treasury K.M. Mahinda Siriwardana
The team also held discussions with Parliamentarians, private sector representatives, civil society organizations, and development partners.
The IMF expressed gratitude to the Sri Lankan authorities for their collaboration, emphasizing the significance of continued cooperation to secure a stable and prosperous economic future for the country.
