IMF Warns of Rising Risks Despite Positive Outlook for Sri Lanka Economy

The International Monetary Fund (IMF) has flagged increasing downside risks for Sri Lanka’s economy even as it acknowledged the country’s progress under its bailout program. In a statement issued from Washington on Thursday, IMF Deputy Managing Director Kenji Okamura emphasized the importance of continued fiscal discipline to maintain economic stability.

The IMF has completed its fourth review of Sri Lanka’s $3 billion bailout package, paving the way for the release of the fifth tranche of funding. The review noted encouraging signs of recovery, including improved economic growth, low inflation, rising foreign reserves, and better fiscal revenues.

“Sri Lanka’s performance under the Fund-supported arrangement is generally strong with some implementation risks being addressed,” said Okamura. “Reforms are bearing fruit, with economic growth strengthening, inflation remaining low, reserves accumulating, and fiscal revenues improving.”

However, the IMF cautioned that despite the positive trends, risks remain. These include potential delays in implementing key reforms, external shocks, and domestic political uncertainties that could hinder the country’s fragile recovery.

The IMF has called on Sri Lanka to adhere strictly to its reform commitments, particularly in public financial management, debt sustainability, and governance. The country is recovering from its worst economic crisis in decades, which saw severe shortages of food, fuel, and medicine in 2022.

The IMF also reiterated the need for social spending safeguards to protect vulnerable populations while continuing to push ahead with structural reforms aimed at long-term sustainability.

The upcoming release of the next tranche of IMF funds is expected to boost investor confidence and support ongoing stabilization efforts. However, analysts note that the path ahead remains challenging, with deep-rooted structural issues still requiring attention.

Sri Lanka’s government, led by President Ranil Wickremesinghe, has pledged to maintain reform momentum and fiscal prudence in line with IMF recommendations.