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IMF agreement on EFF offers relief; strict reforms now essential
View(s):By Bandula Sirimanna
The IMF mission has officially reached a staff-level agreement this week for the combined 5th and 6th reviews of the Extended Fund Facility (EFF), signalling a powerful vote of confidence in the nation’s fiscal discipline.
Despite the dual shocks of the devastating Cyclone Ditwah and the West Asian conflict, this agreement paves the way for a crucial US$700 million cash injection into the extended fund facility.
However, the path to unlocking these two tranches hinges on a “make-or-break” requirement: the government must strictly enforce full cost-recovery pricing for electricity and fuel, ensuring that global energy spikes do not derail the country’s hard-won stability, the IMF mission team led by Evan Papageorgiou told a media conference in Colombo on Thursday.
The IMF Executive Board is scheduled to meet toward the end of May or early June to consider and formally approve the staff-level agreement (SLA) for the combined 5th and 6th reviews, unlocking about $700 million of the next tranches
Before this final approval, Sri Lanka must complete prior actions, specifically restoring cost-recovery pricing for electricity and fuel as well as completing the financing assurances confirming contributions from multilateral partners and ensuring “equitable burden sharing” in debt restructuring, Mr Papageorgiou disclosed.
The government’s policy on governance for 2026 was welcomed by him. He emphasised the autonomy of the Commission to Investigate Allegations of Bribery or Corruption.
Another major objective for the country includes social protection. Sri Lanka is vulnerable to the West Asia situation that has caused an increase in energy prices and affected tourism.
The country is still managing the “build back better” recovery phase following the devastation of Cyclone Ditwah, he disclosed. The most pressing issue is to strengthen social protection to secure vulnerable groups against any economic crisis.
Some of the IMF’s main observations and economic achievements of Sri Lanka include: The country has achieved a GDP growth of 5 per cent in 2025, and the projection for trend growth is 3.1 per cent for 2026. The Gross Official Reserves reached $7 billion in March 2026, and inflation was 2.2 per cent, and fiscal performance recorded considerable progress in 2025, mainly due to tax imposed on imported motor vehicles, and debt restructuring is nearing completion.
Prior to the May IMF Board meeting, the following laws are expected to be either fully implemented or seriously discussed: Adopt the Public Financial Management Act (Act No. 44 of 2024), which entails implementing ITMIS (Integrated Treasury Management Information System) in full from June 2026 to identify expenditure arrears. Sound legislation for public-private partnerships, state-owned enterprises, and public asset management must be legislated.
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