IMF disburses $695 million to Sri Lanka after completing fifth and sixth EFF reviews
Synopsis
The IMF has unlocked $695 million for Sri Lanka after completing back-to-back programme reviews — but the approval comes with a warning. With Cyclone Ditwah and the Middle East war adding fresh downside risks, the Fund has cut Sri Lanka's 2026 growth forecast to 3% and flagged two unmet performance criteria, signalling that the recovery, while real, remains fragile.
Key Takeaways
The IMF disbursed $695 million to Sri Lanka after completing the combined fifth and sixth EFF reviews .
Total IMF purchases under the arrangement now stand at $2.4 billion out of an approved $3 billion package from March 2023 .
Sri Lanka met all end-December 2025 quantitative performance criteria, but two continuous criteria — on external payment arrears and import restrictions — were not observed.
The IMF projects Sri Lanka's growth to slow to 3 per cent in 2026 , with average inflation rising to 5 per cent .
IMF Deputy Managing Director Kenji Okamura endorsed fiscal easing in 2026 as appropriate given the shocks from Cyclone Ditwah and the Middle East conflict .
The International Monetary Fund (IMF) has completed the combined fifth and sixth reviews of Sri Lanka's economic reform programme under the Extended Fund Facility (EFF) arrangement, unlocking an immediate disbursement of $695 million. The decision brings total IMF purchases under the arrangement to $2.4 billion since the programme began.
Programme Performance and Key Metrics
The IMF assessed overall programme performance as generally strong. Sri Lanka met all end-December 2025 quantitative performance criteria, and most structural benchmarks were either met on schedule or implemented with delays. Prior actions on restoring fuel and electricity cost-recovery pricing were also fulfilled, according to official IMF statements.
However, the Fund flagged that two continuous performance criteria were not observed — specifically, the requirement to avoid new external payment arrears and the prohibition on imposing or intensifying import restrictions.
What the $2.4 Billion Arrangement Covers
The 48-month EFF arrangement, approved in March 2023 for approximately $3 billion, is designed to restore macroeconomic stability, strengthen debt and fiscal sustainability, protect vulnerable groups, rebuild external buffers, and reduce governance and corruption vulnerabilities. The latest tranche marks a significant milestone in Sri Lanka's ongoing recovery from its worst economic crisis in decades.
Downside Risks: Middle East War and Cyclone Ditwah
The IMF cautioned that the war in the Middle East and the aftermath of Cyclone Ditwah have materially increased downside risks to the Sri Lankan economy. The Fund projected growth to slow to 3 per cent in 2026, while average inflation is expected to rise to 5 per cent. Higher oil prices could widen the current account deficit, and lower tourism receipts could further strain external balances.
IMF's Assessment and Outlook
IMF Deputy Managing Director and Acting Chair Kenji Okamura said Sri Lanka's reform gains had helped preserve economic resilience and created fiscal space to respond to the twin shocks of Cyclone Ditwah and the Middle East conflict. He noted that fiscal easing in 2026 was appropriate, with the government implementing a temporary relief package and allocating additional spending for recovery and reconstruction.
With two more reviews remaining under the arrangement, Sri Lanka's ability to sustain reform momentum — particularly on revenue mobilisation and debt restructuring — will determine whether the programme concludes on track by 2027.
Point of View
Yet it also risks softening the reform momentum that earned Sri Lanka this credibility in the first place. With $600 million still to be disbursed and the programme running until 2027, Colombo's ability to hold the line on revenue targets while managing cyclone recovery spending will be the real test of whether this turnaround is structural or situational.
NationPress
12 Aug 2026
Frequently Asked Questions
How much has the IMF disbursed to Sri Lanka in total under the EFF?
The IMF has disbursed a cumulative $2.4 billion to Sri Lanka under the Extended Fund Facility arrangement. The latest tranche of $695 million was released after the completion of the combined fifth and sixth programme reviews.
What is Sri Lanka's IMF Extended Fund Facility arrangement?
The 48-month EFF arrangement was approved in March 2023 for approximately $3 billion . It supports Sri Lanka's efforts to restore macroeconomic stability, strengthen debt sustainability, protect vulnerable groups, and advance structural and governance reforms following the country's severe economic crisis.
Did Sri Lanka meet all IMF programme conditions?
Sri Lanka met all end-December 2025 quantitative performance criteria and most structural benchmarks. However, two continuous performance criteria were not observed — the requirement to avoid new external payment arrears and the prohibition on imposing or intensifying import restrictions.
What risks does the IMF see for Sri Lanka's economy in 2026?
The IMF has flagged the Middle East war and Cyclone Ditwah as key downside risks. It projects growth to slow to 3 per cent in 2026, with average inflation rising to 5 per cent . Higher oil prices and lower tourism receipts could further pressure the current account.
What did IMF Deputy Managing Director Kenji Okamura say about Sri Lanka?
Kenji Okamura said Sri Lanka's reform gains had preserved economic resilience and created room to respond to Cyclone Ditwah and the Middle East conflict. He endorsed the government's fiscal easing in 2026, including a temporary relief package and additional reconstruction spending, as an appropriate response to the shocks.
