IMF talks conclude without staff-level agreement as Sri Lanka prepares November Budget

The International Monetary Fund (IMF) concluded its latest discussions with Sri Lanka on September 23 without reaching a staff-level agreement on policies and parameters needed to finalize the Seventh Review of its Extended Fund Facility (EFF). Mission Chief Evan Papageorgiou led the IMF team during the September 10 to 23 visit.

IMF officials stated the discussions were productive, but further talks are required to agree on the necessary policies and parameters for completing the Seventh Review. The mission reflects Sri Lanka's transition from economic stabilization to structural transformation amid ongoing external shocks and fiscal pressures.

Economic growth in the second quarter of 2026 was reported at 4.2 percent, marking the 11th consecutive quarter of expansion. However, the IMF cautioned that downside risks remain, particularly in an uncertain external environment. Gross official reserves stood at $6.9 billion as of August, and the banking sector remained well-capitalized and profitable.

A key focus for the IMF was Sri Lanka's revenue position. The Fund emphasized the need for a strong medium-term revenue strategy, including broadening the tax base, rationalizing exemptions, and improving revenue administration. Maintaining cost-recovery energy pricing and enhancing the tax system's efficiency and fairness were also highlighted as crucial.

The IMF's latest assessment underscores the importance of these revenue measures as Sri Lanka prepares its next Budget. Balancing revenue mobilization and fiscal consolidation while sustaining economic recovery will be a critical challenge for the government. The IMF has not ruled out reaching an agreement but stressed that discussions will continue to finalize the required policies and parameters before the IMF Executive Board's consideration.