Washington, DC – April 24: As Sri Lanka grapples with the economic uncertainties triggered by new US tariffs, the International Monetary Fund (IMF) has urged the country to adopt a forward-looking strategy focused on diversifying export markets and creating a stable, investment-friendly environment—without resorting to tax exemptions or compromising fiscal discipline.
This guidance was shared by Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, during the Regional Economic Outlook – Asia and Pacific session at the 2025 Spring Meetings of the IMF and World Bank Group, held in Washington, DC.
“A team from the IMF visited Sri Lanka recently, and even as the new US tariffs were announced, they were in active discussions with Sri Lankan authorities,” Srinivasan said. “However, the time available then was too short to design a detailed macroeconomic framework to fully assess the impact of the tariffs on growth. Despite returning from the mission, our team has continued dialogue on the matter.”
He emphasized that Sri Lanka serves as a prominent example of a country vulnerable to external tariff shocks, particularly in its garment export sector, which faces severe risks from the policy changes. Other sectors are also expected to be affected.
“Sri Lanka, like many other economies, must mitigate these risks by diversifying export destinations and strengthening regional trade coordination,” he added.
Srinivasan noted that long-term resilience depends not just on market diversification but also on increasing investment inflows. However, he cautioned that this should not be pursued through tax holidays or exemptions, but by fostering a predictable and disciplined policy framework that encourages private sector participation.
“Fiscal consolidation must stay on track. Sri Lanka must not undo the discipline it has worked hard to rebuild. Investment must be promoted through structural reforms and regulatory certainty, not unsustainable incentives,” he stressed.
The remarks come at a crucial moment for Sri Lanka, as its economic recovery from debt distress remains delicate and highly sensitive to global shifts. The IMF’s call for structural reform, export strategy realignment, and fiscal prudence highlights the difficult but necessary path ahead for the island nation.
