IMF Warns Sri Lanka of Risks Despite Economic Growth

The International Monetary Fund concluded a mission to Sri Lanka on September 23, reporting that the nation's economy expanded by 4.2 percent in the second quarter of 2026. Official reserves reached 6.9 billion US dollars by the end of August, and the lender predicts 3 percent economic growth for the full year. These gains follow a 2.9 billion US dollar program designed to recover from a 2022 economic collapse and severe dollar shortages.

Despite this resilience, the IMF warned that risks remain tilted to the downside due to the Middle East conflict, global trade policy, and El Niño. The government has already faced high inflation and energy costs, leading to fuel rationing, price increases, and the declaration of Wednesdays as public holidays since March. While debt restructuring is largely complete and banks remain profitable, the IMF urged the government to broaden its tax base and adopt cost-recovery energy pricing.

Led by Evan Papageorgiou, the mission included meetings with President Anura Kumara Dissanayake and Prime Minister Harini Amarasuriya to establish parameters for the Seventh Review of the Extended Fund Facility. Papageorgiou cautioned that proposed amendments to anti-corruption laws could weaken transparency. The IMF recommended maintaining a 5 percent inflation target and implementing a medium-term revenue strategy to prevent a return to instability.