Discussions between Sri Lanka and the International Monetary Fund concluded without reaching a staff-level agreement for the 7th review of the Extended Fund Facility, though the Fund confirmed that talks are ongoing to finalize the deal soon.

Following a two-week assessment from the 10th until today, an IMF delegation led by Evan Papageorgiou urged the government to maintain prudent economic policies and accelerate structural reforms as new external risks emerge from the Middle East conflict, global trade volatility, and El Niño weather patterns.

Despite these headwinds, the IMF acknowledged that Sri Lanka's economy remains resilient.

Economic activity expanded by 4.2% in the second quarter of 2026, marking 11 consecutive quarters of positive growth, while gross foreign reserves rose to 6.9 billion US dollars by late August.

Government finances performed well in the first half of the year, debt restructuring is largely complete, and the banking sector remains financially sound.

However, headline inflation surged to 8% in August, driven primarily by rising global oil prices.

The IMF advised the Central Bank to remain ready to adjust monetary policy to safeguard price stability while allowing greater exchange rate flexibility to absorb external economic shocks.

To ensure long-term fiscal stability, the IMF called for a medium-term revenue strategy centred on broadening the tax base, curtailing tax exemptions, and improving collection efficiency.

It also stressed the necessity of maintaining cost-recovery energy pricing to mitigate financial risks from state-owned enterprises, while urging faster implementation of public investment and reconstruction projects following Cyclone Ditwah.

Raising serious concerns over proposed amendments to Sri Lanka’s anti-corruption laws, the IMF warned that certain provisions risk weakening transparency and accountability.

The Fund emphasised that robust anti-corruption measures, alongside trade liberalisation, labour regulation modernisation, and enhanced digitalisation, are crucial to boosting investor confidence and unlocking regional economic potential, particularly in the Northern Province following the team’s field visit to Jaffna.