📈 Sri Lanka’s IMF Review: Stabilisation Real, but Reform Unfinished

The completion of the IMF’s combined Fifth and Sixth Reviews under the Extended Fund Facility marks a crucial milestone for Sri Lanka's economic recovery, though long-term risks persist. Overall Figures & Disbursements • Total IMF Funds: The approval released SDR 508 Mn (~US$ 695 Mn), bringing total disbursements to ~US$ 2.4 Bn of the 48-month programme. • Emergency Buffer: Complemented by US$ 206 Mn received in Dec 2025 following Cyclone Ditwah. • Reserves: Gross official reserves hit ~US$ 7.0 Bn by end-March 2026, though usable liquid reserves remain lower due to the inclusion of the PBOC swap. Macroeconomic & Sector Successes • Fiscal Correction: Government revenue near-doubled to 16.6% of GDP in 2025 (vs 8.4% in 2022). Tax revenue reached 14.8% of GDP, driven by higher VAT and motor vehicle import taxes. • Growth & Inflation: The economy grew 5% in 2025 (GDP per capita at US$ 5,003), while March 2026 inflation stabilized at 2.2% YoY. A primary budget surplus of 2.3% of GDP was met. • Energy Reform: Cost-recovery pricing formulas were implemented for the electricity sector to curb state enterprise losses. Outlook & High Debt Risks • Debt Vulnerability: Debt sustainability risk remains "very high." Repayment pressures will intensify starting in 2027 as restructured bilateral and commercial debts mature. • Sovereign Ratings: Credit ratings remain in distressed territory (S&P: CCC+, Moody’s: Caa1, Fitch: CCC+), making market borrowing expensive (11-13% interest). • 2026 Growth Slowdown: GDP growth is projected to ease to 3% in 2026 due to Middle East conflicts affecting supply chains, tourism, and remittances, alongside domestic recovery friction.