The International Monetary Fund (IMF) country team is scheduled to visit Sri Lanka from June 24 to 30 for a formal staff visit to review the nation’s ongoing economic reform programme and assess the implementation of critical structural reforms.
IMF Mission Chief for Sri Lanka, Evan Papageorgiou, announced the upcoming visit via a social media post, confirming that the mission will engage with authorities and a broad range of stakeholders. The objective of the visit is to take stock of recent economic developments and discuss the overall performance of Sri Lanka’s economic reform programme. Papageorgiou stated that the global lender looks forward to constructive and productive discussions during the week-long mission.
This scheduled visit comes shortly after the IMF Executive Board successfully completed the combined fifth and sixth reviews of Sri Lanka’s Extended Fund Facility (EFF) arrangement on May 27. The ongoing programme aims to durably restore macroeconomic stability and debt sustainability following the severe economic crisis of 2022.
During the completion of the latest reviews, the IMF highlighted that Sri Lanka’s performance under the reform programme remains generally strong, achieving a primary budget surplus that met the benchmark of 2.3 percent of the Gross Domestic Product. However, the IMF has issued a cautious message regarding the unfinished structural reform agenda, particularly concerning State-Owned Enterprises (SOEs) and public financial management. A central focus of the upcoming discussions will be the progress of these structural reforms, especially within the energy sector, where the restoration and adherence to cost-recovery pricing formulas have been pivotal. The IMF recently confirmed that Sri Lanka achieved a critical milestone by successfully meeting cost-recovery pricing for both electricity and fuel. Restoring these automated mechanisms was a core structural condition and a key precondition for the IMF to proceed with its latest Executive Board review. Historically, subsidised fuel and electricity have created severe financial losses for state enterprises, widened fiscal pressures, and weakened the country’s external balances.
Recent external shocks, specifically the escalating conflict in the Middle East, drove up global oil prices earlier this year, temporarily delaying necessary adjustments and creating a short-lived subsidy burden. In response to soaring retail fuel prices, the government introduced an emergency Rs. 100 billion energy relief package to insulate vulnerable populations, which included on-budget subsidies amounting to Rs. 100 per litre of diesel and Rs. 20 per litre of petrol.
While the IMF accommodated this temporary relief, it mandated strict adherence to an automated monthly pricing formula to align domestic pump rates with international market costs as a firm condition of the EFF programme.
Consequently, fuel prices were revised upward in line with global market rates, and electricity tariffs underwent an average 11 percent increase to bring both back in line with cost-recovery levels. The IMF requires that any residual energy subsidies be fully phased out and capped by September 2026. Government officials have noted that if global fuel prices remain stable, they may consider passing down price reductions to the public by August or September without deviating from the formula. (NF)
