IMF hails Sri Lanka’s economic rebound as global model 

• IMF First Deputy Managing Director Dr. Gita Gopinath praises remarkable progress in reform and debt restructuring
• Reaffirms President Disanayake’s vision, expressing confidence that Sri Lanka can make its 17th IMF program the last if it remains committed to reform path
• Says Sri Lanka’s challenge now is building resilient economy against future shocks amid rising global uncertainty 
• Highlights CBSL’s autonomy, improved public finance management and anti-corruption laws as key reforms 
• Points to IMF analysis where governance reforms in SL could boost GDP by 7% and cut debt to GDP by six percentage points in a decade
• Cautions on high poverty levels at 24.5% in 2024, calling for quick reforms to reduce it
• Insists on inclusive policies with civil society engagement beyond Colombo 
• Reaffirms IMF’s steadfast support for  Sri Lanka’s reform journey 

Dr. Gita Gopinath

Sri Lanka’s efforts to pull itself out of its worst economic crisis since independence yesterday earned high praise from the International Monetary Fund (IMF), with its First Deputy Managing Director Dr. Gita Gopinath lauding the country’s “remarkable progress” and calling it a global case study in resilience, reform, and responsible debt restructuring.

IMF...

Speaking at a high-level conference titled ‘Sri Lanka’s Road to Recovery: Debt and Governance’ co-hosted by the Finance Ministry and the Central Bank of Sri Lanka (CBSL), she reaffirmed President Anura Kumara Disanayake’s call for long-term stability and expressed confidence that Sri Lanka can make its 17th IMF program the last, provided the country remains committed to its reform path. 

“This time must be different, as the President said. Let us ensure this is the last IMF program Sri Lanka will ever need,” Dr. Gopinath added.

She also said this conference was taking place at a critical juncture for Sri Lanka’s economy.

“It is the midpoint of the reform program that Sri Lanka is going through. It is also an important point because it is a moment where we are seeing increasing tariffs and a rapidly changing global economic order that is surrounded by profound uncertainty with no idea how all of this will end. In this light, Sri Lanka’s experience really stands out,” she added. 

Dr. Gopinath reiterated that the progress that has been achieved by Sri Lanka is truly remarkable over a very short period of time, stressing that the IMF pays very close attention to the economic policies of all its 191 member States.

Amidst the diverse set of external shocks that countries face in the current environment, Dr. Gopinath said the key challenge now remaining for Sri Lanka is not just to stabilise, but to build a resilient economy against future shocks.

Resonating President Disanayake’s call for long-term stability, she said the IMF believes that is possible as long as Sri Lanka stays on course. 

One of the key lessons she said is that future debt restructuring will be easier because of what Sri Lanka went through. “The experience of Sri Lanka will become an important chapter in global debt restructuring,” she opined.

The IMF First Deputy Managing Director asserted that the biggest lesson for Sri Lanka was that it should never find itself in a similar situation again. She stressed that avoiding another crisis will depend on preserving the hard-won reforms and avoiding policy missteps. 

She recalled how Sri Lanka rebounded from 70% inflation in 2022 to reforms in public finance management and anti-corruption governance. 

“The progress that has been achieved in Sri Lanka over a very short period of time should not be taken for granted by anyone,” the First Deputy Managing Director said. 

Acknowledging the bold, courageous, difficult reforms, Dr. Gopinath recognised the commitment and endurance of the people of Sri Lanka in reducing those hardships to bring back macroeconomic stability and credibility.

Key among the milestones according to Dr. Gopinath was the establishment of the Central Bank independence, improving public financial management, and the implementation of a comprehensive anti-corruption legal framework. She said these were not just bureaucratic wins, but meaningful reforms to deliver economic return to the country. 

“Our own analysis shows that if a comprehensive governance reform is undertaken in Sri Lanka, it can increase Sri Lanka’s GDP by more than 7% over the next decade and reduce the debt to GDP ratio by over 6%. So, these are very substantial gains that come from good governance,” she pointed out.

Dr. Gopinath opined the most intricate and most consequential achievement was Sri Lanka’s complex and unprecedented debt restructuring. 

She said by going through this very difficult but necessary restructuring of external and domestic debt, Sri Lanka avoided inflicting even harsher consequences on its people. In doing so, $ 3 billion in external debt was forgiven and $ 25 billion restructured with repayment timelines extended over two decades and interest rates lowered. 

The First Deputy Managing Director said Sri Lanka’s bonds have now been re-listed on global indices and the country’s credit rating has improved. In addition, she appreciated the role of the Official Creditor Committee (OCC), which includes India, France, and Japan, who played a very important role in bringing creditors together, while noting that China also played a critical role.

However, she admitted the process faced challenges, particularly in terms of information sharing and aligning creditor expectations and how the IMF intervened to support.

According to her, the country’s debt restructuring has provided substantial relief, cutting external debt servicing as a share of GDP by half over the next decade, while total debt stocks are projected to fall by 27% and 34% of GDP, respectively.

She said Sri Lanka also recognised early that external restructuring alone would not suffice and domestic debt restructuring was necessary and it had to be done with care to protect financial and social stability. 

Given the high exposure of banks, the Central Bank, and pension funds to sovereign bonds, the process was carefully managed. As a result, she said the country now has a stable, functioning banking sector with growing credit activity. 

Citing World Bank’s estimate that 24.5% of Sri Lankans lived in poverty in 2024, Dr. Gopinath said it was too high and it must be brought down as quickly as possible. She added that this will require continued commitment to macroeconomic stability, sustained reforms, and strong governance to tackle corruption. 

“There is really no room for policy errors. There are difficult measures and they test the social fabric. But they are the foundation of a resilient economy,” she said. 

Acknowledging Sri Lanka has delivered and is now at the midpoint of the Extended Fund Facility (EFF) program, she said the economy is in a good place with reforms and progress looking strong. However, she stressed that Sri Lanka has to remind itself of the risks. 

“The IMF had 16 previous programs and about half of them ended prematurely because reform fatigue sets in. Then, all the hard earned gains get reversed. I think we all can agree that the country cannot afford to repeat this cycle. Thus, it is crucial to sustain the reform momentum in an inclusive and accountable manner,” she emphasised. 

Dr. Gopinath called for greater engagement with civil society; broader stakeholder participation beyond Colombo to ensure that policies are responsive and responsible. 

“The IMF will remain a steadfast partner of Sri Lanka and we very much look forward to working together to improve the lives of all citizens now and in further generations,” she remarked.