IMF warns: Sri Lanka recovery strong but risks rising over Middle East crisis

2026-03-20 - 07:23

IMF Communications Director Julie Kozack said Sri Lanka’s economy is showing solid recovery, but rising global risks, especially from the Middle East, could impact its future performance. Responding to questions from journalists at a press briefing on March 19, 2026, Kozack said Sri Lanka’s reform program has made “very significant progress,” even after the impact of Cyclone Ditwah. She noted that IMF Managing Director Kristalina Georgieva, who recently visited the country, praised both the reform efforts and the resilience of the Sri Lankan people in overcoming major challenges. On economic performance, Kozack pointed to several positive indicators. Sri Lanka’s economy grew by 5 percent in 2025, while inflation remained low at around 1.6 percent in February 2026. She also said debt restructuring is nearly complete and that gross international reserves have been rising significantly—signs of improving economic stability. However, she cautioned that Sri Lanka remains highly exposed to external risks, particularly the ongoing conflict in the Middle East. These risks, she said, could affect the country through trade, remittances, and tourism, potentially weighing on the economic outlook. Addressing questions about possible changes to the IMF-supported program, Kozack did not confirm any immediate recalibration of targets under the Extended Fund Facility. Instead, she said further assessment would take place during upcoming discussions with Sri Lankan authorities. An IMF team is scheduled to visit Sri Lanka from March 26 to April 9, 2026, to hold discussions on economic policies and complete a combined Fifth and Sixth Review of the program. The team will also assess how global developments, especially the situation in the Middle East, could affect Sri Lanka’s economy. Kozack added that the findings from this mission will help the IMF update its assessment and determine how best to continue supporting Sri Lanka. On related concerns, including electricity tariff increases and policy adjustments, Kozack did not provide specific answers, indicating that such issues would likely be addressed during the upcoming review discussions. The IMF’s engagement in the coming weeks is expected to play a key role in shaping the next phase of Sri Lanka’s economic recovery amid an uncertain global environment.