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The International Monetary Fund (IMF) has approved Sri Lanka's program review, allowing the disbursement of 330 million US dollars, while emphasizing the necessity of using monetary policy solely for stability. Despite calls for rate cuts to stimulate growth, the IMF underscores the importance of prioritizing price stability, refraining from monetary financing, and safeguarding central bank independence. Sri Lanka's inflation remains low, yet the operating framework of the monetary authority is criticized for lacking a credible anchor, particularly evident in conflicts arising from attempts to suppress rates along the yield curve through liquidity tools and extensive sterilization of forex interventions, deemed as 'monetary financing.'
Additionally, the IMF highlights risks to Sri Lanka's economic recovery, projecting moderate growth in 2024-25 amid constrained bank credit and fiscal consolidation. Uncertainties loom over debt restructuring and policy direction post-elections. To address vulnerabilities, the IMF stresses the importance of sustained revenue mobilization efforts, finalizing debt restructuring in line with program targets, and protecting social and capital spending. Furthermore, the gradual removal of external controls is recommended to rebuild external buffers and facilitate external rebalancing, emphasizing the need for continued exchange rate flexibility and phasing out balance of payments measures.
