FINANCIAL CHRONICLE – Evan Papageorgiou, the International Monetary Fund’s Mission Chief for Sri Lanka, has emphasized the importance of allowing the country’s economy to adapt to changing circumstances in order to maintain the progress that has been made thus far.
His remarks come as Sri Lanka experiences a significant depreciation of its currency, the rupee, in anticipation of the IMF Board’s approval for the fifth and sixth reviews under the Extended Fund Facility scheduled for May 27.
The Central Bank Governor and the Deputy Finance Minister have attributed this decline in the rupee’s value to “external conditions.” Papageorgiou highlighted the need for a consistent policy direction, stating on his LinkedIn profile, “Continuing to allow the economy to adjust to evolving conditions will be key to sustaining the gains achieved so far.”
He noted that substantial progress has been made in recent years towards restoring macroeconomic stability, rebuilding reserves, and enhancing investor confidence. “These efforts have been acknowledged by the public, investors, and stakeholders, contributing to a more robust economic foundation,” he added.
However, Papageorgiou acknowledged that recent global developments have created new pressures, affecting many economies in the current challenging external landscape. He remarked, “Navigating these shocks is never easy, but Sri Lanka’s policy framework is significantly stronger than it was in the past.” He expressed a desire for ongoing collaboration with Sri Lankan authorities as they continue their reform initiatives.
Some analysts suggest that the recent currency depreciation may be a strategic move to attract more foreign currency inflows, thereby boosting the country’s gross official reserves. Historical patterns indicate that the rupee tends to depreciate when Sri Lanka is engaged in an IMF program.
Typically, during IMF engagements, currencies experience a two-phase trajectory: an initial sharp depreciation, often mandated, followed by a gradual stabilization through policy measures. Nations generally seek IMF assistance during severe balance-of-payments crises, characterized by dwindling foreign reserves and overvalued currency pegs. The commencement of an IMF arrangement usually necessitates a shift to a market-driven or floating exchange rate system, leading to an immediate and steep devaluation of the local currency.
In the short term, this adjustment corrects trade imbalances by making imports more expensive and enhancing the competitiveness of local exports, although it can lead to temporary spikes in domestic inflation. Over the medium to long term, as central banks implement IMF-required measures—such as significant interest rate increases to mitigate capital flight and rigorous fiscal consolidation to rebuild reserve buffers—market confidence generally returns. Thus, the currency may stabilize or appreciate moderately, moving from volatile depreciation to a more predictable and sustainable trading range.
(Colombo/May 21/2026)
