The International Monetary Fund has cautioned Sri Lanka that its progress in restoring financial stability after debt restructuring will only be sustained if fiscal discipline and stronger institutions are maintained. In a working paper, the IMF urged Colombo to manage borrowing risks more carefully, align new loans with programme goals, and strengthen debt management amid what they described as a “more complex post-restructuring debt portfolio.
The paper credited the 2023 domestic debt operations with easing borrowing costs and reviving private credit growth, while noting that reforms such as the Public Finance Management and Public Debt Management Acts were important milestones. However, it warned that there is no room for slippage on the fiscal front.
Latest Central Bank data shows the overall budget deficit narrowed nearly 55 per cent in the first eight months of 2025 to 411 billion rupees, supported by a 31 per cent rise in tax revenue and a primary balance surplus of 1.27 trillion rupees.
While the narrowing deficit and stronger revenues point to early success in fiscal consolidation, the IMF’s warning underscores that these gains are fragile. The challenge for Sri Lanka is to turn short-term improvements into lasting discipline, ensuring that debt remains sustainable and the recovery is not derailed by policy slippage or renewed borrowing pressures.
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