IMF staff concludes visit to Sri Lanka

IMF staff concludes visit to Sri Lanka

The International Monetary Fund (IMF) staff recently concluded a visit to Sri Lanka, highlighting the country's economic progress and identifying key risks. The visit, which took place from July 21 to 25, 2025, was led by IMF Mission Chief for Sri Lanka, Evan Papageorgiou.

Sri Lanka's economic reforms have shown commendable outcomes, with real GDP growing by 4.8% year-on-year in the first quarter of 2025, outperforming expectations. Headline inflation was at -1.1% year-on-year in the second quarter of 2025, gradually returning to target. Gross international reserves stood at $6 billion at the end of June 2025, while tax revenue collection continued to improve, supported by strong performance in VAT and taxes on imported motor vehicles [2].

Despite the positive outlook, downside risks have increased due to potentially high U.S. tariffs on Sri Lanka's exports, persistent trade policy uncertainty, and heightened geopolitical tensions. The U.S. tariffs could impact about $3 billion in exports, with the apparel sector, which exports 40% of its output to the U.S., being particularly exposed [1].

Papageorgiou emphasized the critical importance of maintaining reform momentum to safeguard macroeconomic stability and build resilience to shocks. He noted that any shocks from the U.S. tariffs will be addressed within the IMF programme. The upcoming budget, expected to be presented to parliament in November, will need to include stronger tax revenues and lower public spending to maintain a primary balance target of 2.3% of GDP in the medium term [1].

The IMF also stressed the importance of monetary policy remaining prudent and prioritizing price stability, with central bank independence being safeguarded. The debt restructuring process is nearing completion, and the IMF encourages a swift completion of bilateral agreements with the remaining official and commercial creditors to restore debt sustainability and regain investor confidence [2].

The IMF team held meetings with various senior government officials, including President Anura Kumara Disanayake and Finance Minister Anura Kumara Disanayake, as well as representatives from the private sector, civil society organizations, and development partners. The IMF expressed its commitment to supporting Sri Lanka at this uncertain time [2].

References:
[1] https://www.zawya.com/en/world/indian-sub-continent/sustaining-sri-lankas-reforms-critical-to-safe-guarding-macroeconomic-stability-imf-says-acufkygh
[2] https://www.ft.lk/front-page/IMF-staff-concludes-visit-to-Sri-Lanka-to-discuss-progress-of-economic-program/44-779521