The headline figures are, by any honest reading, rather good. The economy grew 5% last year. Gross official reserves have climbed to $ 7 billion. Inflation, which was running at 70% in the teeth of the 2022 crisis, has returned to something approaching normalcy. Debt restructuring is nearly complete. The International Monetary Fund’s (IMF) own mission statement following its most recent visit described Sri Lanka’s reform agenda as delivering “commendable outcomes”. For a country that three years ago could not pay for fuel imports and was rationing electricity on a rolling basis, this is not nothing. It is, in fact, quite a lot.
The 48-month Extended Fund Facility (EFF), approved in March 2023, expires in March 2027. That leaves approximately 11 months from now before the scaffolding comes down and the structure is required to stand on its own. The question of what Sri Lanka does next, whether it seeks an 18th programme, submits to a successor arrangement of some lighter variety, or resolves to conduct its own fiscal affairs without Washington looking over its shoulder, is one that the Government has not publicly answered with any directness.
What the Treasury Secretary told bondholders in February was that Sri Lanka remained committed to the reform path and to meeting its debt-to-GDP target of 95% by 2032.
The historical record is, to put it charitably, unencouraging. This is Sri Lanka’s 17th IMF programme since independence. Of the previous 16, seven were only partially disbursed, meaning that on seven separate occasions, the country entered a programme, received some portion of the money, abandoned the conditions attached to it, and eventually returned to ask for more.
President Anura Kumara Dissanayake deserves credit, genuinely, for the pragmatism his Government has shown. His alliance campaigned on renegotiating the IMF terms to accommodate more welfare expenditure. Once in office, it continued the programme largely intact, which represents a more significant departure from electoral promise than this country’s political culture normally tolerates. The Ceylon Electricity Board unbundling is proceeding. Cost-recovery electricity pricing has been restored. The primary surplus for 2025 came in at 3.4% of GDP, above projections. These are real accomplishments and should not be dismissed because of the scepticism that history imposes.
But scepticism is precisely what this moment demands, not as a counsel of despair but as the only honest intellectual posture available to anyone who has watched this film before. The reforms that are easiest to implement, the ones that involve raising prices and cutting transfers in a crisis when the alternative is a collapsed currency and empty shelves, have largely been done.
The reforms that remain are the structural ones: broadening the tax base beyond the relatively narrow set of revenue sources that currently bear the weight, reforming State-owned enterprises whose losses have for decades functioned as a slow drain on public finances, and building the institutional independence that would allow monetary policy to resist the political pressure that has historically overwhelmed it.
The argument for seeking another programme, should the Government find itself inclined in that direction, is not as embarrassing as it might appear. A post-EFF arrangement, lighter in conditionality, focused on signalling, would keep Sri Lanka within an accountability framework during the period when the temptation to relax will be at its highest. Markets respond to it. Borrowing costs are influenced by it. The signal that a country chooses to remain under external review even when it does not strictly need the money is, paradoxically, one of the more effective ways of demonstrating that it has learnt something. Several countries have used exactly this approach following programme exits, and not all of them were basket cases requiring extended supervision. Some were simply governments that understood the value of a credible commitment device.
The argument against is the one of sovereignty and self-respect, and it is not without merit. A country cannot remain perpetually supervised without inviting questions about whether its institutions are capable of independent governance, and at some point the training wheels must come off. Sri Lanka’s reserves are stronger than they have been in years. The debt restructuring is substantially complete. If not now, the question of when becomes genuinely difficult to answer.
The discipline that the IMF has provided has not been foreign imposition. It has been a substitute for the domestic political will that Sri Lanka’s own institutions have repeatedly failed to sustain. When the programme expires, that substitute expires with it. What replaces it, if anything, is entirely a matter of choices that this Government and its successors will make when nobody from Washington is in the room. History, on that question, has established a very clear baseline expectation. The only interesting thing left is whether this time is different. Most things, in most countries, are not different. But most countries have not yet spent three years clawing their way back from the kind of collapse Sri Lanka experienced in 2022.