Colombo, October 2025 —
Sri Lanka has reached a staff-level agreement with the International Monetary Fund (IMF) for the release of a US$347 million tranche, marking a crucial milestone in the island’s macroeconomic stabilization journey under the Extended Fund Facility (EFF). This marks the fifth review since the program began in 2023, bringing total disbursements to US$2.04 billion out of the approved US$3 billion package.
The IMF highlighted significant progress in fiscal consolidation and monetary policy stability. Inflation has remained below 6% for much of 2025, and tax revenues have improved following the reintroduction of progressive taxation and VAT reforms. The Central Bank of Sri Lanka (CBSL) has maintained a tight monetary stance to manage liquidity and preserve external stability, while gradually rebuilding foreign reserves, which now exceed US$4.8 billion.
The economic recovery, however, remains uneven. Growth projections for 2025 hover around 4.6%, up from 3.1% last year, driven by tourism, remittances, and a rebound in manufacturing. Yet, poverty levels and cost-of-living pressures continue to weigh heavily on low- and middle-income households. Fiscal reforms and SOE restructuring remain central to long-term sustainability.
The market responded positively. The Colombo Stock Exchange (CSE) gained nearly 1.8% following the announcement, with investor sentiment improving across the banking, power, and construction sectors. The Sri Lankan rupee, which had been under pressure in early Q3, showed short-term stabilization against the dollar, closing near Rs. 334/USD.
From a policy standpoint, the IMF’s continued engagement reaffirms Sri Lanka’s credibility among international lenders. Successful completion of this review is expected to unlock further bilateral support from Japan, India, and the Paris Club creditors. The agreement signals that, while challenges persist, Sri Lanka’s financial discipline and governance reforms are beginning to yield tangible results in restoring investor confidence.
