The International Monetary Fund (IMF) is currently in discussions to potentially combine the fifth and sixth reviews of the Extended Fund Facility for Sri Lanka, according to Mission Chief Evan Papageorgiou. This consideration follows a delay in the last review caused by Cyclone Ditwah.
Speaking to reporters in Colombo after assessing the cyclone’s impact, Papageorgiou described the combination of reviews as a “live discussion.” Meanwhile, Sri Lanka’s President’s media office has indicated that discussions regarding the sixth tranche under the program are expected to resume in March.
Each review under the Extended Fund Facility results in the disbursement of 254 million Special Drawing Rights, roughly equivalent to 371 million US dollars at current exchange rates. If both reviews are completed together, Sri Lanka would receive approximately 720 million US dollars.
The staff-level agreement and targets for Sri Lanka’s planned fifth review, initially set for December 2025, became obsolete after the 2025 budget increased spending by 500 billion rupees, creating uncertainty in economic projections. The fifth review was to focus on the fiscal and monetary targets for June 2025.
However, by March 2026, updated targets for December will be available under the applicable program before the staff-level assessment for the fifth review. Emerging data show that Sri Lanka has maintained most quantitative targets for both June and December.
Sri Lanka’s reserve collections declined following a rate cut in May and insufficient deflationary policies, such as the sell-down of central bank-held domestic assets, leading to currency depreciation. Nonetheless, the impact of Cyclone Ditwah in December may have reduced domestic credit, which in turn could lower interest rates and reduce imports, potentially aiding reserve accumulation in the following weeks.
Similar to the credit standstill experienced after the 2004 tsunami, foreign inflows as Ditwah aid could strengthen the currency, provided the central bank does not intervene by purchasing these inflows to create new money, allowing them to enter the market freely.
(Colombo/Jan30/2026)
