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IMF Reaches Staff-Level Agreement with Sri Lanka on Fourth Review of Extended Fund Facility

By,
Miyuru Rasoj- Colombo


On April 25, 2025, the International Monetary Fund (IMF) announced that it has reached a staff-level agreement with Sri Lankan authorities on the Fourth Review of the country’s reform program under the IMF’s Extended Fund Facility (EFF). 

This agreement marks a significant step forward in Sri Lanka’s ongoing economic recovery and reform efforts following the severe financial crisis it faced three years ago.


Key Details of the Agreement

The agreement covers economic policies designed to conclude the Fourth Review of Sri Lanka’s reform program supported by the IMF’s 48 month EFF arrangement, which was initially approved in March 2023 for about SDR 2.3 billion (approximately US$3 billion).

Once the IMF Executive Board approves this review, Sri Lanka will gain access to roughly US$344 million in new financing, bringing the total IMF disbursement under this program to about US$1.72 billion.

The approval is contingent upon Sri Lanka implementing prior actions such as restoring electricity cost recovery pricing and ensuring the proper functioning of the automatic electricity price adjustment mechanism, as well as completing a financing assurances review confirming multilateral partners’ committed financing and debt restructuring progress.


Progress and Economic Outlook

The IMF praised Sri Lanka’s reform program for delivering commendable outcomes:

  • Economic growth rebounded strongly, with a 5% growth rate recorded in 2024, signaling a robust post-crisis recovery.
  • Revenue mobilization reforms improved the revenue-to-GDP ratio from 8.2% in 2022 to 13.5% in 202416.
  • Gross official reserves increased to US$6.5 billion by the end of March 2025, supported by significant foreign exchange purchases by the Central Bank of Sri Lanka16.
  • Debt restructuring efforts are nearly complete, contributing to improved fiscal stability156.


Challenges and Risks

Despite these positive developments, the IMF highlighted ongoing risks, particularly global trade policy uncertainties which could negatively impact Sri Lanka’s economy. 


For instance, recent U.S. tariffs on Sri Lankan exports, including a 44% import tariff on approximately US$3 billion worth of exports (later partially suspended), pose challenges to key sectors like the apparel industry, which employs around 300,000 people.


The IMF emphasized that if these downside risks materialize, the Sri Lankan authorities and IMF staff will collaborate to assess the impact and formulate appropriate policy responses within the framework of the IMF supported program.


Government Commitment and Future Outlook

The IMF acknowledged the Sri Lankan government’s sustained commitment to the reform agenda, which has bolstered confidence and ensured policy continuity. 

Moving forward, the IMF stressed the importance of maintaining reform momentum, including reducing corruption vulnerabilities, continuing revenue mobilization efforts, and rebuilding external buffers to safeguard macroeconomic stability and promote inclusive growth.


The IMF and Sri Lankan officials, Deputy Minister of Finance Dr. Harshana Suriyapperuma and Central Bank Governor Dr. P. Nandalal Weerasinghe, expressed satisfaction with the constructive discussions and strong collaboration that led to this agreement.

This development offers hope for Sri Lanka’s sustained economic progress and highlights the importance of continued reforms and international cooperation in overcoming ongoing challenges.

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