By a special correspondent
Sri Lanka’s request for rapid funding from the IMF has brought fresh attention to the widening cracks in its economic recovery programme, revealing how the Cyclone Ditwah disaster has collided with unresolved structural problems in ways the government can no longer conceal.
While emergency relief operations intensify across flooded districts, the administration is simultaneously attempting to reassure the IMF that it remains committed to the 2023 EFF reform agenda despite multiple indicators suggesting a drift from core targets.
At the heart of the issue is fiscal space, or more precisely, the lack of it. The government must now finance massive compensation packages, speed up reconstruction, and restore essential services yet these expenditures were never accounted for in the EFF-aligned medium-term fiscal framework.
Officials insist the spending will not derail reforms, but the IMF’s forthcoming review is expected to probe revenue performance, state-enterprise restructuring delays, and the widening budget gap caused by the cyclone response.
The situation has been worsened by the slow pace of reserve accumulation, which fell short of 2025 expectations. The rupee’s sharp depreciation throughout the year has raised further doubts about monetary discipline.
These setbacks come at a time when Sri Lanka must also prepare to repay USD 216 million to the IMF in 2026 as part of its previous crisis facilityadding another layer of pressure to demonstrate credibility.
The USD 200 million RFI request is therefore more than a plea for disaster relief; it signals the fragility of Sri Lanka’s economic stabilisation efforts.
The IMF designed the RFI to be fast-disbursing, but approval still hinges on the Fund’s confidence that Sri Lanka is not reversing hard-won gains. In parallel, the USD 350 million sixth tranche of the EFF remains tied to performance criteria and governance commitments, including transparent public finance management and fiscal reforms.
This juncture exposes a deeper political challenge. The government has struggled to project policy coherence announcing reforms one week while implementing contradictory measures the next. Key legislative changes have stalled, state-enterprise overhauls have been diluted, and tax enforcement remains uneven.
This inconsistency weakens investor confidence and risks undermining the very foundation of the IMF-supported recovery.
For households hit by cyclone devastation, these macroeconomic tensions may feel distant, yet the consequences are not.
Any deviation from the IMF programme could slow future disbursements, limiting the government’s ability to fund relief and reconstruction sustainably.
Conversely, strict adherence without adequate social safeguards risks public backlash at a time when communities are struggling to rebuild.
Sri Lanka now stands at a critical intersection: a natural disaster demanding immediate action and a reform agenda requiring steadfast commitment. Whether the government can balance both without compromising either remains the defining question of its economic path forward.