Sunday Oct 12, 2025
Sunday Oct 12, 2025
Friday, 10 October 2025 04:41 - - {{hitsCtrl.values.hits}}
The International Monetary Fund (IMF) said Sri Lanka’s debt sustainability will depend on the Government’s continued fiscal discipline, macroeconomic reforms, and completion of restructuring agreements under the Extended Fund Facility (EFF).
IMF Mission Chief Evan Papageorgiou told reporters in Colombo that debt restructuring is almost complete.
“Restructuring is nearly complete,” he said. “The Eurobond exchange was completed successfully in December 2024, almost a year ago, and several bilateral agreements have been signed so far with Japan, India, and others as well.”
He said Sri Lanka has made significant progress in reducing its external debt burden.
“Of the $ 28 billion of external debt that we have under the perimeter, now we have only half a billion left in terms of which restructuring agreements need to be reached,” Papageorgiou said.
“The next step for that is to finalise the bilateral OCC official credit committee agreements and to reach the agreements with the remaining commercial and official creditors.”
He said the finalisation and execution of restructuring agreements are essential but must be accompanied by continued policy discipline.
“The finalisation, the execution of the restructuring agreements is key, but alongside that there needs to be continued fiscal prudence, ongoing macroeconomic reforms, and maintaining fiscal sustainability and debt sustainability. All these go hand in hand,” he said.
Papageorgiou stressed that addressing the debt stock alone is insufficient.
“Fixing the debt stock is important, but also making sure that the flow that feeds into the debt stock is just as important,” he said. “Having a prudent debt management, having the PDMO being up and running, being operational is also very important.”
He added that the IMF’s assessment is that under all these conditions, debt will be sustainable on a forward-looking basis.
On the 2026 Budget, Papageorgiou said it remains a key prior action for the ongoing review.
“We have one prior action this time,” he said. “It is about the Budget. And it is about ensuring that the Budget parameters are in line with our program.”
He said the IMF will monitor both the size and quality of Government spending.
“We have the primary fiscal surplus target of 2.3%, or the minimum, rather, of 2.3%. And then alongside of that, we are also judging the quality of the spending programs that will go into the budget,” Papageorgiou said.
He also underlined the importance of State-Owned Enterprise reforms in containing systemic fiscal risks.
“We take note on the ongoing commitments by the Government on seeing a group in association with putting in stronger incentives for management, as well as the new SOE Act to manage the state-owned enterprises,” he said.
Turning to fiscal revenue performance, Papageorgiou acknowledged the recent surge in collections, largely driven by motor vehicle imports and taxes.
“Obviously, you probably have seen all the new vehicles in the streets of Colombo and the rest of the country, which we have as well,” he said. “The motor vehicle imports have performed very strongly this year and, in a way, has also maintained – the pace has maintained pretty well.”
He said the IMF is assessing whether the sharp increase in motor vehicle taxes represents a sustainable source of revenue.
“One crucial question for us is to exactly gauge how much of that could be interpreted or could be translated into persistent strength for 2026,” Papageorgiou said.
“We think that, obviously, the big uptick, the big increase that we’ve seen in imports as well as the revenue that has come into the public coffers is very important. We welcome it. And we are trying to see how much of that is pent-up demand and what would be the steady state post-that.”
He said the surge in vehicle imports is a positive signal of domestic recovery but will need close monitoring.
“The vehicle import numbers have been impressive and stronger than we anticipated,” he said. “Obviously, the size remains to be seen, but the numbers that you mentioned is something that sounds plausible to us as well.”
Papageorgiou said strong tourism receipts, remittances, and exports have helped offset the impact of higher imports on reserves.
“Reserve accumulation is an outcome of many variables, not just the imports of vehicles which remove dollars from the market, but also offsetting aspects with strong tourism, strong remittances, and ongoing general strength on the export sector,” he said.
He added that the Central Bank remains on track to meet or exceed its net international reserve target.
“On the net international reserve target, or floor, rather, in our programme, the Central Bank is on pace or ahead of pace,” he said. “Our expectation is that this is not affected now.”
Papageorgiou said the IMF and the authorities are discussing how to translate the current revenue performance into sustainable fiscal gains while maintaining external stability and prudent debt management.
