IMF staff ended a June 24-30 visit to Colombo, saying reform momentum remains critical after Middle East war-related pressure on Sri Lanka’s economy.
Inflation, reserves and tourism signals point to policy uncertainty for sourcing teams monitoring costs and currency conditions.
The Extended Fund Facility programme will be formally assessed during the next IMF mission.
It said headline inflation rose from 1.6 per cent year on year in February 2026 to 5.5 per cent year on year (YoY) in May after energy price increases, tourist-arrival growth softened and gross international reserve accumulation slowed.
The Central Bank of Sri Lanka responded with a 100-basis point policy rate increase and macroprudential measures, while the government introduced temporary on-budget relief covering fuel, electricity and fertiliser subsidies and cash transfers to vulnerable households, the IMF statement added.
The IMF said that Sri Lanka should return to a primary balance target of 2.3 per cent of gross domestic product (GDP) in 2027 after fiscal easing in 2026, strengthen tax compliance, broaden the tax base and improve public financial management.
It also called for faster reform of state-owned enterprises, cost-recovery energy pricing, better-targeted social safety nets, stronger debt-management capacity and prudent, data-dependent monetary policy.
According to a June 30 communication from the Central Bank of Sri Lanka, the IMF team was led by Evan Papageorgiou and visited Sri Lanka to assess recent macroeconomic developments and discuss progress under the IMF-supported Extended Fund Facility arrangement. The central bank said the statement reflected preliminary IMF staff findings and would not lead to an IMF Executive Board discussion.
The next formal assessment of Sri Lanka’s programme performance will take place during the Seventh Review of the Extended Fund Facility.
It also identified exchange-rate flexibility, a phased removal of balance-of-payments restrictions, trade liberalisation, labour-market reform and a stronger business environment as areas relevant to resilience and investment.
Fibre2Fashion News Desk
