Sri Lanka reached a Staff-Level Agreement with the IMF on a four-year program supported by the Extended Fund Facility on 1st September 2022.
The program, amounting to USD 2.9 bn, is expected to restore macroeconomic stability and debt sustainability while protecting the vulnerable and safeguarding Sri Lanka’s financial system. This agreement remains subject to IMF Executive Board approval.
The IMF program has been centred around Sri Lanka’s ambitious reform program. The government’s reform agenda is based on four pillars:
1. The first pillar is fiscal reform. The program foresees the implementation of ambitious revenue-based fiscal consolidation measures, combined with revenue administration reforms and the introduction of fuel and electricity pricing mechanisms to minimize fiscal risks stemming from SOEs. It also includes the enhancement of existing social safety nets to protect the most vulnerable;
2. The second pillar will be to restore public debt sustainability. Sri Lanka’s debt situation has been deemed unsustainable by the IMF and will need to be addressed by a comprehensive debt treatment;
3. Thirdly, the program will aim to restore price stability and rebuild external buffers. The government is committed to refraining from any monetary financing and the Cabinet will soon approve the Central Bank Act that will strengthen the Bank’s independence and modernise its policy framework;
4. The fourth pillar of the program is safeguarding financial system stability, a key condition to Sri Lanka’s economic recovery. This will be achieved by ensuring that Sri Lanka’s banking system is adequately capitalised and by strengthening the resilience and governance of its state-owned banks.
5. In addition to these pillars, the government will introduce a series of anti-corruption reforms that will align Sri Lanka’s legal framework with international standards and will implement broader structural reforms to unlock Sri Lanka’s growth potential.