IMF Urges Sri Lanka 2026 Budget Alignment, Warns Tariff Risks

The International Monetary Fund (IMF) has recognized Sri Lanka's notable economic progress under its Extended Fund Facility (EFF), with growth exceeding expectations and inflation returning to stability. Despite these gains, the IMF cautions that global trade uncertainties, including risks from tariffs under the Trump administration, and geopolitical tensions pose significant downside risks to the recovering economy. The Fund emphasizes the critical need for Sri Lanka to maintain its reform momentum, strengthen fiscal revenues, and avoid sweeping tax holidays to safeguard macroeconomic stability. The 2026 budget should align with IMF program parameters, focusing on strong revenue measures, prudent monetary policy, and enhanced public financial management. Sri Lanka's debt restructuring is nearing completion, with the fifth program review scheduled for later in 2025 to assess progress amid evolving external risks. The IMF's advice includes preserving central bank independence and ensuring upcoming legislation on state enterprises and public-private partnerships adheres to best practices to support sustainable growth.