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Colombo: The International Monetary Fund (IMF) has announced a staff-level agreement with Sri Lanka regarding economic policies, paving the way for the completion of the combined fifth and sixth reviews of the nation's reform program. This announcement was made on Thursday.

An IMF delegation visited Sri Lanka from March 26 to April 9 to assess the progress of the reform program supported by the Extended Fund Facility (EFF) from the IMF.

This agreement will facilitate the release of USD 700 million from a total bailout package of USD 2.9 billion for the year 2023.

The IMF highlighted that the ongoing reforms by Sri Lankan authorities have positively impacted the country's recovery, with an increase in foreign reserves and better-than-expected growth in real GDP and revenue.

According to the IMF, Sri Lanka's ambitious reform agenda is yielding positive results, with the economy experiencing a 5% year-on-year growth in 2025. Inflation has stabilized at 2.2% year-on-year as of March, and gross official reserves reached USD 7 billion by the end of March 2026.

Fiscal performance in 2025 was robust, largely due to taxes on motor vehicle imports. The process of debt restructuring is nearing completion, with successful debt exchanges for Sri Lankan Airlines and progress in finalizing remaining bilateral agreements.

The IMF noted that Sri Lanka is significantly affected by the ongoing conflict in the Middle East, which has led to increased energy prices, disrupted tourism, and impacted Sri Lankans working in the region.

To mitigate economic disruptions, authorities have ensured adequate fuel supplies for households and industries. However, the country must also address infrastructure and spending needs resulting from Cyclone Ditwah.

The IMF emphasized the need to accelerate reform efforts to maintain macroeconomic stability and enhance resilience against shocks, especially given the heightened risks from disasters and trade policy uncertainties.

It is crucial for Sri Lanka to build fiscal space through effective revenue measures and prudent spending. This includes improving tax compliance, broadening the tax base, and enhancing public financial management.

As the nation embarks on rebuilding, projects should be prioritized wisely, with transparent spending in line with the Public Financial Management Act. Any fiscal support in response to external shocks should be well-targeted and time-limited.

Protecting vulnerable populations, who are disproportionately affected, remains a priority, necessitating the strengthening of social safety nets.

The IMF also welcomed the release of the 2026 government action plan focused on governance reforms.