COLOMBO: Sri Lanka’s economic outlook remains positive, but global trade policy uncertainties pose significant risks to macroeconomic and social stability, the International Monetary Fund (IMF) said on Thursday.
Sri Lanka, which plunged into financial crisis due to a record shortage of dollars three years ago, has recovered strongly since securing a $2.9 billion four-year program from the global lender in March 2023.
But trade turmoil triggered by the U.S., which imposed 44% import tariffs on about $3 billion of the island nation’s exports could create headwinds, the global lender said after approving the fourth review for about $350 million.
The full tariff was suspended for three months, but U.S. imports from Sri Lanka will still be subject to a baseline 10% tariff, like those of most other countries.
“In case shocks materialize, the authorities should work closely with the Fund to assess the impact and formulate policy responses within the contours of the program,” Evan Papageorgiou, IMF Mission Chief for Sri Lanka told an online press briefing.
Sri Lanka’s consumer prices rose 0.6% year-on-year in May
“Steadfast program implementation will be crucial.”
Timely finalisation of Sri Lanka’s bilateral agreements with remaining official and commercial creditors is a priority, Papageorgiou added.
Sri Lanka entered into a preliminary deal with key lenders to restructure about $22.5 billion in foreign debt last year, which includes an agreement with China for about $4.75 billion in loans.
Sri Lanka’s central bank should continue to prioritise price stability and the government’s budget for next year will also be crucial to continue the IMF programme and cement crisis recovery, Papageorgiou told reporters.
Sri Lanka is on track to post growth of 3.5% this year after 5% last year, the World Bank said in its latest report, unchanged from its October forecast.
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