EXCLUSIVE | No Turning Back: IMF Says Fiscal Discipline Remains Crucial

COLOMBO (News 1st); The International Monetary Fund (IMF) has defended the fiscal and revenue-enhancing measures implemented under Sri Lanka’s economic reform program, stressing that restoring fiscal sustainability remains essential for the country's long-term recovery while ensuring protection for vulnerable communities through strengthened social welfare mechanisms.

Responding to concerns over the burden placed on households and businesses by revenue-based fiscal consolidation measures, an IMF spokesperson speaking EXCLUSIVELY to News 1st stated that such reforms form a key pillar of Sri Lanka's Extended Fund Facility (EFF) program and are intended to support the government's efforts to rebuild fiscal stability following the country's worst economic crisis in recent history.

According to the IMF, Sri Lanka's fiscal performance has improved significantly since 2022. Tax revenue as a share of Gross Domestic Product (GDP) has more than doubled, reaching 15.4 percent of GDP in 2025, the highest level recorded in a decade.

The IMF emphasized that the reform program is not solely focused on revenue collection and fiscal consolidation. Strengthening social safety nets remains another key pillar of the program, aimed at shielding poor and vulnerable groups from the impact of economic shocks and policy adjustments.

The Fund highlighted ongoing efforts to improve the coverage and targeting of the Aswesuma welfare program, describing them as an important step toward better supporting low-income households. It further noted that the IMF-supported program includes a social spending floor, ensuring that expenditure on social protection is safeguarded even as fiscal reforms continue.

The spokesperson also pointed to a range of targeted assistance measures introduced to cushion the impact of global economic pressures, including enhanced Aswesuma benefits, electricity and fuel subsidies, as well as support provided to farmers through fertilizer assistance and relief extended to the fishing community. These interventions were designed to mitigate the effects of the Middle East conflict and other external shocks on businesses and households.

Looking ahead, the IMF stressed that sustaining revenue mobilization will be critical to building economic resilience, improving the business environment and creating a tax system that better supports long-term growth. The Fund said that developing and implementing a medium-term revenue strategy would be an important next step, including measures to improve the fairness and equity of the tax system.

The IMF also cautioned that tax expenditures and exemptions should continue to be used  very cautiously, underscoring the importance of maintaining adequate fiscal buffers and a strong fiscal position to prevent future economic vulnerabilities.

Meanwhile, an IMF team led by Evan Papageorgiou is currently in Sri Lanka from September 10 to September 23 for discussions with the authorities as part of the combined Seventh Review of Sri Lanka's reform program under the Extended Fund Facility and the 2026 Article IV Consultation.