IMF urges Sri Lanka to broaden tax base, improve fiscal management, reform SOEs and maintain recovery under the EFF programme.
IMF officials have urged Sri Lanka to broaden its tax base and strengthen fiscal management as the country continues its economic reform programme.
An International Monetary Fund team led by Ewan Papageorgiou visited Colombo from June 24 to 30, 2026, to discuss recent macroeconomic trends and progress made under the IMF-supported Extended Fund Facility.
At the end of the visit, Papageorgiou said the Middle East conflict had affected Sri Lanka’s economy.
“With higher energy prices, year-on-year headline inflation increased from 1.6 percent in February 2026 to 5.5 percent in May 2026. Tourist arrivals slowed, and the pace of gross international reserve accumulation declined,” he said.
In response, the Central Bank of Sri Lanka raised the policy interest rate by 100 basis points and introduced macroprudential measures.
The government also introduced a temporary budget-funded relief package, including fuel, electricity and fertilizer subsidies, as well as cash transfers for the most vulnerable families.
Papageorgiou said recent declines in global commodity prices should partly ease external pressure, although global uncertainty remains high.
He stressed that continued reform implementation is essential to secure Sri Lanka’s recovery and protect fiscal and external sustainability.
Authorities remain committed to returning to a primary surplus target of 2.3 percent of GDP in 2027, after adopting a looser fiscal stance in 2026.
The IMF said fiscal management must continue to improve through stronger tax compliance, a broader tax base and measures to prevent expenditure arrears from re-emerging.
It also said addressing issues linked to disaster-related spending, including cyclone Dithva relief, is critical for recovery and reconstruction.
The Fund further urged faster state-owned enterprise reforms and continued cost-recovery energy pricing to reduce fiscal risks.
It also called for proper targeting and adequate coverage of social safety nets to protect vulnerable families.
With debt restructuring nearing its final stages, the IMF said the Debt Management Office must be strengthened to promote prudent debt management, expand the domestic debt market and support Sri Lanka’s gradual return to international capital markets.
Papageorgiou said monetary policy should remain data-dependent, flexible and responsive to changing conditions to safeguard price stability.
He also said exchange rate flexibility is important to absorb external shocks and support reserve accumulation, with intervention limited to smoothing excessive volatility.
The IMF added that balance of payments restrictions should be phased out, while operational risk management, cybersecurity, and anti-money laundering and counter-terrorist financing measures must be strengthened to protect financial stability.
Governance reforms, the IMF said, are essential to build resilience and achieve strong, durable and inclusive growth.
It called for policies to improve tax efficiency and fairness, liberalize trade, address labour market challenges, improve the business climate, attract investment, create jobs and reduce poverty.
Sri Lanka’s programme performance will be formally assessed during the seventh review under the Extended Fund Facility, with the timing of the review mission to be announced later.
The IMF team held talks with President and Finance Minister Anura Kumara Dissanayake, Prime Minister Dr. Harini Amarasuriya, Labour Minister and Deputy Finance and Planning Minister Professor Anil Jayantha Fernando, Central Bank Governor Dr. P. Nandalal Weerasinghe, Treasury Secretary Dr. Harshana Suriyapperuma, Senior Economic Adviser to the President Duminda Hulangamuwa, Senior Adviser to the President on Digital Economy Dr. Hans Wijesuriya and other senior government and Central Bank officials.
The mission also met private sector representatives, civil society organizations and development partners.
“We thank the authorities for their excellent cooperation during the mission,” Papageorgiou said.
