• Assumes return to international capital markets through Eurobond issues
• Warns on anti-corruption amendments

Whether Sri Lanka enters an 18th arrangement with the International Monetary Fund is a decision for the Government alone, the IMF said yesterday (23), as its mission left without a staff-level agreement on the seventh review of the current bailout.

“This request needs to come from the Government. It is not the IMF’s opinion,” Mission Chief Evan Papageorgiou said, answering a question raised by The Daily Morning Business at the Central Bank of Sri Lanka, at the end of a two-week visit that began on 10 September.

He was answering whether a country that has gone to the Fund 17 times, and whose President has hinted at tax cuts in the upcoming Budget, would need another programme ahead of heavy debt repayments from 2028.

Papageorgiou did not give a yes or no. He said the Fund’s focus was on finishing the current Extended Fund Facility (EFF), which still has two reviews to go, the seventh now under negotiation and an eighth before the arrangement expires in March 2027.

He said an IMF programme is not a fixed set of rules imposed on a country. It should be built around what the authorities want to achieve. The Fund could also support Sri Lanka without a programme, he said, through annual Article IV surveillance, technical assistance and financial sector assessments.

Pressed again on whether a successor programme had been discussed, he said his priority was to complete the remaining reviews and that the Fund would engage “as the Government wishes”.

The stakes are high, as Fitch warned that external debt repayments are expected to rise over the next five years, particularly after 2028, leaving Sri Lanka vulnerable to external shocks and policy slippage.

Papageorgiou said the IMF still assumes Sri Lanka will return to international capital markets through Eurobond issues “in 2027 or thereabouts”. He described Tuesday’s (22) Fitch upgrade as a step in the right direction. Fitch raised Sri Lanka to B- from CCC+ with a stable outlook, citing stronger fiscal and external balances, structural reforms and reduced external financing risks.

No deal yet

The mission ended without a staff-level agreement. Papageorgiou said the talks were productive but more time was needed on complex budget issues. Discussions will continue from Washington, he said. He added that he hoped the next disbursement would not be delayed.

The IMF Board approved the 48-month EFF on 20 March 2023, for SDR 2.286 billion (nearly $ 3 billion). About $ 2.4 billion has been disbursed so far, leaving SDR 508 million, roughly $700 million, for the final two reviews.

Inflation target, governance

The IMF advised the Central Bank to keep its 5% inflation target, with its band of plus or minus 2 percentage points, in the first statutory review of the framework. An announcement is expected in October. Headline inflation rose to 8 percent in August on higher oil prices.

The Fund said some clauses in recently tabled amendments to the anti-corruption law could weaken transparency and accountability, and that it had raised these concerns with the authorities. Papageorgiou acknowledged the language was unusually direct. However, he said Sri Lanka’s anti-corruption efforts were “going in the right direction” and that the IMF supported reviewing the 2023 Act.