IMF Commends Sri Lanka’s Debt Progress, Warns of Ongoing Vulnerabilities


The International Monetary Fund (IMF) acknowledged Sri Lanka's significant strides in debt restructuring efforts, aimed at restoring debt sustainability, during a press briefing on Friday. Peter Breuer, Senior Mission Chief for Sri Lanka, highlighted the need to swiftly finalize the Memorandum of Understanding with the Official Creditor Committee and reach final agreements with the Export Import Bank of China.

Breuer highlighted the necessity of completing restructuring with external private creditors to meet program targets, with the IMF staff committed to assisting in creditor coordination. Despite these advancements, he cautioned that the Sri Lankan economy remains vulnerable and the journey to debt sustainability is precarious.

Key challenges include ongoing debt restructuring, revenue mobilization, reserve accumulation, and banking sector support for recovery. Sustaining reform momentum and strong ownership by authorities and the public are crucial for transitioning from stabilization to recovery.

Breuer said the importance of maintaining revenue mobilization efforts, promptly finalizing debt restructuring, and protecting social and capital spending to achieve fiscal sustainability. Enhancing fiscal discipline through public financial management and strengthening the debt management framework were also noted as essential steps.

The IMF Executive Board's approval on Thursday recognized Sri Lanka's strong program performance, with most quantitative targets met and structural benchmarks either achieved or slightly delayed. Breuer underscored the need for continued monetary policy focus on price stability, commitment to refrain from monetary financing, and maintaining central bank independence. He also called for ongoing exchange rate flexibility, phasing out balance of payments measures, restoring bank capital adequacy, and strengthening governance of state-owned banks to support economic recovery.