The International Monetary Fund has approved an additional $700 million loan for Sri Lanka, while calling on the government to speed up reforms to sustain its economic recovery following the 2022 financial crisis.
The funding is part of a broader four-year $2.9 billion bailout programme, with the latest disbursement dependent on key conditions, including restoring cost-reflective pricing in the energy sector.
Sri Lanka’s government recently announced plans to allocate nearly $200 million for fuel subsidies after a surge in global energy prices, partly driven by tensions in the Middle East, forced a sharp increase in local fuel costs.
However, the IMF has expressed concerns over widespread subsidies, urging authorities to ensure that electricity pricing reflects actual costs, especially while maintaining limited support for vulnerable consumers.
The Fund noted that Sri Lanka remains highly vulnerable to developments in the Middle East, which have contributed to rising energy costs, disruptions in tourism, and challenges for Sri Lankans working abroad.
It stressed the need for faster implementation of reforms to maintain economic stability and protect the country from further external shocks.
The country’s recovery efforts have also been affected by recent challenges, including a devastating cyclone that struck in November, causing significant loss of life and widespread destruction of infrastructure.
Following the disaster, the government sought emergency financial support to aid recovery efforts, as rebuilding costs placed additional strain on the economy.
Sri Lanka experienced a severe economic downturn in 2022, leading to a contraction of over 7 percent and triggering widespread protests that forced the resignation of former president Gotabaya Rajapaksa.
The current administration under Anura Kumara Dissanayake has continued with several austerity measures and tax policies introduced to stabilise the economy.
