The International Monetary Fund’s Executive Board has completed the combined fifth and sixth reviews of Sri Lanka’s Extended Fund Facility (EFF), unlocking an immediate disbursement of SDR 508 million — about US$695 million, NewsFirst reported.
The release brings total disbursements under the 48-month programme to roughly US$2.4 billion since it was approved in March 2023. The arrangement, originally valued at around US$3 billion, is aimed at restoring macroeconomic stability, strengthening public finances, rebuilding external buffers and advancing structural reforms.
The Board cited generally strong performance. Authorities completed key prior actions — including restoring cost-recovery pricing for fuel and electricity — and met all quantitative targets set for end-December 2025, while achieving most structural benchmarks with some delays. The Fund noted, however, that two continuous performance criteria were not observed, specifically commitments to avoid new external payment arrears and to refrain from imposing or intensifying import restrictions. Authorities requested a waiver “on the basis of minor breach and the adoption of corrective actions,” EconomyNext reported.
The Fund attributed the arrears breach to the Treasury cybercrime incident that diverted US$2.5 million owed to the Government of Australia — equivalent to 0.002 percent of GDP — with investigations continuing in coordination with Canberra. On the import side, Sri Lanka imposed a 50 percent customs surcharge on vehicles in May after the rupee fell sharply, a step the Board described as an intensification of import restrictions.
The IMF warned that Sri Lanka’s outlook faces growing downside risks. The Middle East conflict has clouded prospects through higher global oil prices and potential disruption to tourism, while the aftermath of Cyclone Ditwah has forced increased recovery and reconstruction spending. Growth in 2026 is now projected to slow to around 3 percent, with higher energy costs lifting inflation and weaker tourism receipts straining the current account.
The Fund acknowledged that reform gains have built resilience and policy space, noting the temporary relief package introduced for vulnerable households. It urged a medium-term revenue strategy and a return to fiscal discipline beyond 2026, targeting a primary surplus of 2.3 percent of GDP from 2027. It also called for greater exchange rate flexibility and a gradual phase-out of balance-of-payments restrictions.
Deputy Finance Minister Dr. Anil Jayantha confirmed on June 3 that the US$695 million had been credited to the country’s foreign reserves, NewsFirst reported. He said the inflow would meaningfully support financial stability and was an important factor in maintaining the rupee against the US dollar.
The IMF on May 29 also released the Letter of Intent that anchored the Board decision, Newswire reported. The letter — dated May 13 and signed by President and Finance Minister Anura Kumara Dissanayake alongside Central Bank Governor Dr. Nandalal Weerasinghe — commits the authorities to phase out the temporary fuel and electricity subsidies introduced in response to Cyclone Ditwah and the Middle East conflict by end-September 2026, with any future support for vulnerable groups channelled through targeted welfare rather than universal price relief. The letter also restates the 5 percent GDP growth recorded in both 2024 and 2025 and the SDR 508 million access request that the Board cleared on May 27.
The decision delivers the milestone markets had awaited since the Board set May 27 as the date for the combined reviews. It follows the staff-level agreement reached on April 9 and Mission Chief Evan Papageorgiou’s pre-decision confidence in the reform framework. The approval also anchors Sri Lanka’s debt restructuring, which the Fund described as nearing completion, even as it cautioned that debt sustainability risks remain elevated.
