IMF raises concerns over fuel subsidies ahead of Sri Lanka programme review

The International Monetary Fund (IMF) has confirmed that Sri Lanka’s combined Fifth and Sixth reviews under the Extended Fund Facility are expected to be presented to its Executive Board in the coming weeks, with approval subject to completion of key prior actions.

Responding to questions at a press briefing on Sri Lanka’s programme, IMF Communications Director Julie Kozack said the staff-level agreement was reached on April 9 between IMF teams and Sri Lankan authorities. She noted that Board approval would unlock around US$700 million in financing for the country.

However, questions were raised over whether current government fuel subsidies, including a Rs. 100 per litre diesel subsidy, align with the IMF’s cost recovery pricing framework, which remains a key condition for programme approval.

The IMF maintained that prior actions required for Board consideration included restoring cost-recovery pricing for electricity and fuel while ensuring protection for vulnerable groups, alongside completion of financing assurances.

Kozack acknowledged that Sri Lanka has been impacted by significant external shocks, including Cyclone Ditwah and ongoing geopolitical tensions in the Middle East, which have affected the broader global economic environment.

Despite these challenges, she said Sri Lanka’s economic performance has remained resilient, supported by ongoing reforms under the IMF programme. She pointed to strong fiscal performance in 2025, improved revenue collection, and continued progress in debt restructuring efforts, which she said is now nearly complete.

The IMF also noted that Sri Lanka recorded 5% economic growth in 2025, while inflation has returned to positive territory after a period of deflation. The debt-to-GDP ratio is also expected to continue on a downward path.

Kozack added that while reforms are progressing, the IMF will continue to work closely with Sri Lankan authorities to assess ongoing support, reaffirming the Fund’s commitment to the country’s economic stability and recovery.