Energy subsidies will be phased out by September 2026 as Sri Lanka seeks IMF approval for a US$ 670 million loan tranche.
Energy subsidies are set to be gradually removed by September 2026 as Sri Lanka reaffirmed its commitments under the International Monetary Fund reform programme.
The government has renewed its commitment to the economic reform programme under the Extended Fund Facility obtained from the IMF.
This was stated in a letter sent to IMF Managing Director Kristalina Georgieva by President Anura Kumara Dissanayake, in his capacity as Minister of Finance, Planning and Economic Development, and Central Bank Governor Dr. Nandalal Weerasinghe.
According to the letter published by the IMF, the government has informed the Fund of several important decisions related to the country’s economic management.
The government specifically states that cost-reflective pricing mechanisms for electricity tariffs and fuel prices are already being brought onto the right track and implemented.
The letter also states that total expenditure on energy subsidies and other relief measures, including fuel, electricity, fertiliser, and fisheries subsidies introduced to assist people affected by recent regional and climatic impacts, has been capped at Rs. 100 billion.
The government has informed the IMF that all these relief measures are being managed through the budget.
It also stated that it expects to gradually phase out these subsidy schemes by the end of September 2026 to safeguard hard-won fiscal stability and policy safeguards.
Sri Lanka has succeeded in meeting all quantitative performance criteria and indicative targets set for the end of December 2025.
However, the government has acknowledged that the continuous performance criterion on avoiding new external payment arrears was slightly missed.
This was due to several foreign debt payments being delayed because of a cybercrime.
By the end of February, Sri Lanka had completed 16 out of 22 structural benchmarks.
To address the cybersecurity issues, the government is taking steps to strengthen standard operating procedures by the end of June.
It also plans to implement a new debt management information system by the end of August.
Considering Sri Lanka’s good performance, the letter requests the IMF Executive Board to approve the completion of the combined fifth and sixth reviews under the EFF programme.
The government has also requested the release of the loan tranche of SDR 508 million, approximately US$ 670 million.
In addition, Sri Lanka has requested a waiver for the external debt payment delay caused by the technical error.
The government has also sought approval for new structural benchmarks and targets extending until December 2026 and February 2027.
