Sri Lanka is currently at the midpoint of its four-year economic reform program, which is supported by the International Monetary Fund (IMF). The program has led to significant improvements in the country's economy over the past two years. According to Peter Breuer and Martha Tesfaye Woldemichael from the IMF, "Most noticeably, there are no more lines for fuel, cooking gas and medicines and no scheduled power outages." They further noted that the economy grew by 5 percent in 2024.
The reform efforts have also resulted in increased tax revenues and improved government financial balance. External creditors have provided debt relief by forgiving $3 billion and extending $25 billion due over a longer period with reduced interest rates. Sri Lanka's credit rating has been upgraded, making its tradeable debt instruments attractive to investors again.
Despite these positive developments, Breuer and Woldemichael acknowledged that many households have yet to feel the benefits of this economic turnaround. "The Sri Lankan people are paying a regrettably high price for past policy missteps," they stated. However, they emphasized that sacrifices are necessary to ensure long-term stability.
IMF financing since 2023 has played a crucial role in avoiding more severe outcomes than those experienced in 2022 before the program began. The IMF continues to support Sri Lanka's commitment to reforms, which help secure financing from other partners.
Following elections last fall, the IMF worked closely with Sri Lanka's new government to adjust the program according to policy priorities. This collaboration allowed for adjustments such as changes in personal income tax regimes and public sector wage increases.
Breuer and Woldemichael stressed the importance of continuing with reforms at this critical juncture: "About half of IMF programs Sri Lanka has had prior to the current one ended prematurely." They highlighted that maintaining reform momentum is essential for sustainable recovery amid global uncertainties.
To achieve stable growth and fiscal sustainability, it will be crucial for Sri Lanka to manage revenues effectively while ensuring social support reaches those most in need. "The task ahead is ambitious but doable," they concluded, affirming that the IMF remains committed to supporting Sri Lanka's recovery journey.