The International Monetary Fund has linked the release of a combined $700 million to Sri Lanka to progress on cost-reflective energy pricing and completion of external debt restructuring, in a clearer framing of the conditions attached to the pending fifth-and-sixth-review disbursement than earlier official statements.
IMF Asia Pacific Department Director Krishna Srinivasan, speaking at the Regional Economic Outlook launch press conference on Thursday, said Sri Lanka had rebuilt fiscal space since the 2022 crisis and could cushion the impact of rising energy costs, but only through measures that are “very targeted and temporary” and implemented efficiently.
“In the case of Sri Lanka, over the last three years, they have made significant improvement in boosting their tax revenues, revenues as a share of GDP. So they have gradually built up fiscal buffers,” Srinivasan said. “So in some sense, I would say they’re better placed to provide support to people who are hurting from this energy shock.”
Sri Lanka reached a staff-level agreement with the IMF earlier this month on the combined Fifth and Sixth Reviews under the Extended Fund Facility. The roughly $700 million disbursement now requires Executive Board approval, and the FT cites IMF communications saying progress on cost-reflective energy pricing and external debt restructuring remain the “key conditions” for that sign-off.
The IMF’s latest Regional Economic Outlook projects Asia’s growth to moderate from 5% in 2025 to 4.4% in 2026, with inflation expected to rise in the near term. External balances across the region are weakening, and risks are tilted to the downside should energy prices remain elevated for longer.
Srinivasan said economies with high import dependence and limited buffers face greater exposure to prolonged shocks. Sri Lanka, he added, remains sensitive to external developments including disruptions tied to the Middle East conflict — despite recent gains in revenue and reserves.
Sustaining the recovery, the Fund said, will depend on maintaining reform momentum through stronger governance, trade liberalisation, accelerated digitalisation and an improved regulatory environment. The weekly fuel price revision formula approved by Cabinet earlier this month is the mechanism through which the cost-reflective commitment will be measured.
Source: Daily FT.
