Thursday Dec 25, 2025
Thursday Dec 25, 2025
Thursday, 25 December 2025 00:00 - - {{hitsCtrl.values.hits}}
President and Finance Minister Anura Kumara Dissanayake
Central Bank Governor
Dr. Nandalal Weerasinghe
With the International Monetary Fund (IMF) approving the $ 206 million Rapid Financing Instrument (RFI), Sri Lanka has formally assured the IMF that it will preserve fiscal discipline and maintain an open trade and payments regime while responding to the devastation caused by Cyclone Ditwah, as concerns mount over the sustainability of the country’s economic recovery.
The World Bank has estimated initial damage from the disaster at around $ 4.1 billion, while the International Labour Organisation (ILO) has placed the total economic impact at $ 16 billion. The IMF has separately forecast Sri Lanka’s balance of payments (BOP) deficit to widen by about $ 700 million.
In a Letter of Intent (LOI) dated 10 December for the RFI and submitted to the IMF, co-signed by President and Finance Minister Anura Kumara Dissanayake and Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe, the Government detailed the scale of the disaster, its immediate fiscal response, and the policy commitments underpinning its IMF-supported reform program.
Despite the scale of the shock, the authorities stressed the importance of fiscal prudence. “We recognise the importance of staying prudent to preserve our fiscal and debt sustainability,” the LOI said.
“Accordingly, we will meet the recovery and reconstruction needs primarily through spending reprioritisation and reallocation and use of contingency allocations within the Budget, before considering a Supplementary Budget in 2026.”
The LOI further assured the IMF that all emergency spending, and any 2026 Supplementary Budget, if required, will be deployed in full compliance with the Public Finance Management Act and align with transparency and accountability standards.
On monetary policy, the authorities reaffirmed commitments under the IMF Extended Fund Facility (EFF). “In line with our commitment under the EFF-supported reform program, the CBSL will continue refraining from monetary financing of the deficit,” the LOI said, adding: “We welcome an update to the Safeguards Assessment as early as possible.”
The Government also pledged to maintain an open external payments regime. “We will not impose new or intensify existing restrictions on the making of payments and transfers for current international transactions, trade restrictions, or multiple currency practices, or enter into bilateral payments agreements which are inconsistent with Article VIII of the Fund’s Articles of Agreement,” the LOI stated.
Against this background, Sri Lanka formally requested emergency financing from the IMF under the RFI, amounting to about $ 205 million. The Fifth Review under the EFF is expected to commence early next year.
Reaffirming its commitment to the reform agenda, the Government said: “We remain committed to the EFF-supported reform program and continue to engage with IMF staff to complete the Fifth Review at the earliest possible time,” adding that program objectives remain unchanged, including restoring fiscal and debt sustainability, safeguarding price and financial sector stability, rebuilding external buffers, strengthening governance, and advancing growth-oriented structural reforms.
