Sri Lanka: Fifth and Sixth Reviews under the Extended Arrangement under the Extended Fund Facility, Requests for a Waiver of nonobservance of a Performance Criterion, Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka

This paper presents Sri Lanka’s Fifth and Sixth Reviews under the Extended Arrangement under the Extended Fund Facility (EFF). Sri Lanka’s performance under the EFF arrangement has remained broadly strong despite a challenging external environment. Program implementation has advanced, with prior actions to restore fuel and electricity cost-recovery pricing completed and all end-December 2025 quantitative performance criteria met. While the continuous performance criteria on external payment arrears and import restrictions were not observed, most structural benchmarks were achieved, albeit some with delays. The reform program has strengthened economic resilience, enabling timely policy responses to mitigate the impacts of Cyclone Ditwah and the war in the Middle East while protecting vulnerable populations. Nevertheless, these shocks have worsened the economic outlook and increased downside risks. Maintaining prudent macroeconomic policies remains essential. Monetary policy should continue prioritizing price stability, while greater exchange rate flexibility and the gradual removal of balance-of-payments measures are critical for rebuilding external buffers and enhancing resilience. Sustained reform implementation will be key to preserving stability and supporting long-term growth.