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The International Monetary Fund’s (IMF) board approved two reviews of Sri Lanka’s loan programme on Wednesday, immediately releasing an additional $695 million in loans to the crisis-hit island nation.
The new funds mark the latest instalment of the country’s four-year, $3 billion bailout package.
While the Fund praised the government’s economic resilience, it explicitly warned that the severe economic fallout from the ongoing war involving Iran threatens to disrupt the nation’s recovery.
Surging global oil prices stemming from the Middle East conflict have hit import-dependent Asian economies especially hard.
IMF Deputy Managing Director Kenji Okamura noted that Sri Lanka’s strong policy implementation helped the nation absorb shocks from both the war and Cyclone Ditwah.
However, the IMF warned that the conflict has significantly worsened Sri Lanka’s economic outlook, prompting the Fund to downgrade its 2026 growth projection to 3 per cent as inflation climbs and the current account balance weakens.
To secure the board’s approval, the Sri Lankan government had to adjust domestic energy subsidies to ensure fuel and electricity prices met strict cost-recovery criteria.
While the authorities successfully aligned utility prices with IMF mandates, they failed to meet other critical benchmarks.
The IMF statement revealed that Sri Lanka violated specific programme criteria by taking on new external debt and imposing fresh import restrictions during the review period.
