IMF releases $700m to Sri Lanka amid crisis risks

The International Monetary Fund (IMF) has approved a $700 million loan tranche for Sri Lanka, while warning that the ongoing Middle East conflict could threaten the country’s fragile economic recovery.

The funds are part of a $2.9 billion bailout program, with conditions including reforms to ensure cost recovery in energy pricing and broader fiscal discipline.

Sri Lanka has faced renewed pressure due to rising global energy costs linked to tensions involving Iran. The government plans to spend nearly $200 million on fuel subsidies after being forced to sharply raise prices.

The IMF cautioned against widespread subsidies and urged authorities to maintain pricing reforms, especially in electricity, to stabilise public finances.

It also highlighted Sri Lanka’s vulnerability to the crisis, citing higher energy costs, disruptions to tourism routes, and impacts on overseas workers in the Middle East.

The warning comes as the country continues to recover from its 2022 economic collapse and recent setbacks, including severe damage from Cyclone Ditwah.

Under President Anura Kumara Dissanayake, the government has largely continued austerity measures introduced after the crisis, as it seeks to maintain economic stability and secure international support.