IMF Chief backs Sri Lanka recovery; says open to flexible program post-Ditwah

IMF Managing Director Dr. Kristalina Georgieva

This spirit of resilience has also been proven in the IMF-supported program. When we launched it in 2023, Sri Lanka was in a deep crisis with the economy contracting sharply, inflation skyrocketing and reserves nearly depleted. Today, thanks to the sacrifices of the Sri Lankan people and reforms by successive governments, the picture is much more positive

While it is too soon to declare “mission accomplished”, Sri Lanka is definitely on the path to success. Yet the recovery is still in its early stages and remains fragile. This is why we urge Sri Lanka to remain focused on reforms in the months ahead 

IMF programs are designed to be flexible when circumstances change. Sri Lanka’s arrangement with the IMF under the Extended Fund Facility is not rigid—it can and will be adapted to the new reality post-Ditwah. The Fifth Review of the program, which was just about to be completed when the cyclone struck, has been deferred to allow time to reassess the situation 

By continuing to accumulate foreign exchange reserves, Sri Lanka is building a cushion to absorb external shocks. Maintaining a prudent fiscal stance and steadily reducing debt will strengthen confidence and give the Government more space to respond to future shocks. The country should also push forward with efforts to diversify its economy and export base

 With the Government’s strong commitment to the program’s objectives, I am confident the economic turnaround is irreversible and progress will continue.  Sri Lanka can count on our support on this journey 

Sri Lanka, like any country emerging from a crisis, must keep an eye on several potential risks. Domestically, implementation capacity could be an issue as Sri Lanka simultaneously tries to reform its economy, rebuild after a cyclone, and drive growth. On the external side, one major risk is uncertainty in the global trade environment. Trade tensions, tariffs, or a slowdown in global demand could affect Sri Lanka’s key export sectors. Another external risk concerns a sharp rise in commodity prices that would increase import costs and put upward pressure on inflation and downward pressure on foreign exchange reserves

By Nisthar Cassim

Ahead of a historic visit today to Sri Lanka International Monetary Fund (IMF) Managing Director Dr. Kristalina Georgieva in this exclusive interview with the Daily FT shares her thoughts on Sri Lanka's resilience amidst multiple challenges and success thus far in terms of recovery and stability and what needs to be done to ensure a more stable, inclusive and prosperous future.

Q: Dr. Kristalina Georgieva, this is your first visit to Sri Lanka as the IMF Managing Director. As the head of the IMF, how would you rate Sri Lanka’s progress under the IMF program thus far? Is Sri Lanka a success story of recovery post-crisis?

A: I was looking forward to this visit for some time and am delighted to be here, in this beautiful country.  I come in solidarity with the Sri Lankan people who have demonstrated remarkable resilience in the face of the many challenges from recent years. The most recent, the devastation caused by Cyclone Ditwah, once again tested the resolve of the nation — seeing the unity people here demonstrated at this moment of hardship fills me with deep respect and hope for the future.  

This spirit of resilience has also been proven in the IMF-supported program. When we launched it in 2023, Sri Lanka was in a deep crisis with the economy contracting sharply, inflation skyrocketing and reserves nearly depleted. Today, thanks to the sacrifices of the Sri Lankan people and reforms by successive Governments, the picture is much more positive. The economy is recovering—growth was around 5 percent in 2024 and we estimate that activity expanded by a further 5 percent in the first 9 months of 2025, which is a remarkable rebound. Inflation has fallen to close to 2 percent, foreign reserves have been rebuilt, and tax revenue has outperformed expectations. These are strong signs of stabilisation.

The country has also implemented important reforms, including the new Central Bank Act to bolster the Central Bank’s independence, and has completed a comprehensive Governance Diagnostic Assessment to identify and tackle corruption—Sri Lanka is the first country in Asia to undertake this exercise with the IMF. Significant progress has also been made on debt restructuring. These efforts are essential to restoring debt sustainability and unlocking further support from international partners. 

While it is too soon to declare “mission accomplished”, Sri Lanka is a definitely on the path to success. Yet the recovery is still in its early stages and remains fragile. This is why we urge Sri Lanka to remain focused on reforms in the months ahead. With the Government’s strong commitment to the program’s objectives, I am confident the economic turnaround is irreversible and progress will continue.  Sri Lanka can count on our support on this journey. 

Q: What are your views on the challenges and opportunities for Sri Lanka to rebuild better post Cyclone Ditwah?

A: As the country rebuilds, it has the opportunity to not only restore what was damaged but also build a more resilient Sri Lanka. This requires overcoming three main challenges. 

First, resources are limited: it is critical for the Government to continue managing its finances prudently as it assists those hit by the cyclone. Of course, speed is important. But the key will be to spend effectively and transparently so that every rupee of support has the maximum impact. The Government has put in place new public financial management rules (under the PFM Act) that set high standards for accountability. It is vital that in responding to the crisis, those standards are upheld. 

Second, prioritise support for the most vulnerable people that suffer the greatest disaster impact.  The Government has moved to extend support to vulnerable groups by another 6 months. That is a very welcome step. As the rebuilding continues, spending should be targeted on those most in need: farmers who need seeds and tools to replant, fishermen who need boats repaired, families who need shelter and food.

Finally, it is important to incorporate natural disaster resilience into the rebuilding efforts.  As you rebuild homes, roads, power lines, and water systems, it is important to ask: can they be stronger and smarter to withstand future shocks better? The IMF, together with the World Bank and others, has been encouraging the integration of disaster resilience into public investment planning. If done right, this rebuilding process can also create jobs and stimulate local economies, helping communities get faster back on their feet.

Q: Some are saying that Sri Lanka should renegotiate the terms of the current program and reset the IMF conditions given the Ditwah shock. How do you see the IMF helping Sri Lanka post-Ditwah to ensure a more resilient and strong economy to help improve the lives and livelihoods of Sri Lankans?

A: Let me assure you, we are fully committed to helping Sri Lanka through the aftermath of Cyclone Ditwah and to supporting the country’s broader goal of building a strong and prosperous economy. And we have already taken action. When the cyclone hit and it became clear Sri Lanka had urgent financing needs, we moved quickly to deliver emergency support — $205 million in emergency funding under our Rapid Financing Instrument (RFI).  We took the decision on 19 December 2025 and the funds were disbursed immediately to help Sri Lanka meet critical post-disaster needs.

IMF programs are designed to be flexible when circumstances change. Sri Lanka’s arrangement with the IMF under the Extended Fund Facility (EFF) is not rigid—it can and will be adapted to the new reality post-Ditwah. The Fifth Review of the program, which was just about to be completed when the cyclone struck, has been deferred to allow time to reassess the situation. 

In January, shortly after the RFI, an IMF mission visited Sri Lanka to discuss the impact of the cyclone. Another mission will be in Colombo next month to work with the Government on the next steps to complete the review. 

Beyond financial support, we offer technical assistance and policy advice to help make Sri Lanka’s economy more resilient and improve lives. For instance, we are providing support to enhance how Sri Lanka plans and executes public investment projects. Our Public Investment Management Assessment (PIMA) helps ensure that development projects are well prioritised, cost effective, and completed without delays. We are also advising on prioritisation of capital projects and helping strengthen debt management and fiscal resilience.

Q: Are there any external shocks and internal headwinds/risks Sri Lanka should be mindful of and be prepared to deal with?

A: We live in a time when uncertainty has become the new normal. Sri Lanka, like any country emerging from a crisis, must keep an eye on several potential risks. Domestically, implementation capacity could be an issue as Sri Lanka simultaneously tries to reform its economy, rebuild after a cyclone, and drive growth. On the external side, one major risk is uncertainty in the global trade environment. Trade tensions, tariffs, or a slowdown in global demand could affect Sri Lanka’s key export sectors. Another external risk concerns a sharp rise in commodity prices that would increase import costs and put upward pressure on inflation and downward pressure on foreign exchange reserves.

The good news is that the strategies and policies in the IMF-supported program are designed to strengthen defences against these risks. By continuing to accumulate foreign exchange reserves, Sri Lanka is building a cushion to absorb external shocks. Maintaining a prudent fiscal stance and steadily reducing debt will strengthen confidence and give the Government more space to respond to future shocks. The country should also push forward with efforts to diversify its economy and export base.

Preparedness is key. We often say, “fix the roof while the sun is shining,” which means continue building financial and policy buffers now, while things are improving. As Sri Lanka is beginning to see some sunlight after the storm, the IMF will continue to support its rebuilding efforts.

Q: What is your message to the Sri Lankan people?

A: I would like to express my deep respect for and solidarity with the people of Sri Lanka. Your resilience in the face of adversity has been truly inspiring. We stand with you as a committed partner to support your journey toward a more stable, inclusive, and prosperous future for generations to come.