Central Bank Governor Dr. Nandalal Weerasinghe says Sri Lanka should pursue revisions to the targets set under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) arrangement, in light of recent unforeseen developments.

Speaking during a televised programme Weerasinghe said discussions on revising the targets are expected during the upcoming visit of an IMF delegation later this month.

“It was initially expected to complete the fifth review on December 15. However, due to the cyclone, the government noted that the previously proposed budget would no longer be applicable for the coming year, as additional expenditures would be required,” he said, explaining that time was needed to postpone the review, make assessments, and set new targets for the year ahead and beyond.

“The IMF also offers Rapid Financing Instruments (RFI), which are well-suited for situations like this,” he added. “In 2020, we were not eligible for this support due to the lack of debt sustainability. Now that we have achieved it, the RFI is the most appropriate option.” He noted that a key advantage of the RFI is that it does not require a formal agreement with the government.

The team is scheduled to conduct the fifth review of Sri Lanka’s 48-month EFF program.

The governor noted that events such as Cyclone Ditwah, which caused significant damage to infrastructure and livelihoods, have made some targets unfeasible. He added that the national budget, formulated prior to the cyclone, and other evolving factors should be taken into account during the review discussions. (Newswire)

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Sri Lanka’s economy could see stronger-than-expected growth in 2026, driven by increased government spending on post-cyclone recovery, though it is still too early to assess the full impact, Central Bank Governor Dr. Nandalal Weerasinghe said.

Speaking during a televised program on the country’s economic outlook, Weerasinghe said that while initial projections estimated growth in the range of 4 to 5%, the additional stimulus from reconstruction efforts may push economic activity even higher, provided the funds are spent efficiently and without major delays.

Weerasinghe noted that economic growth in 2023 had exceeded expectations, with growth nearing 5% by the third quarter. While the impact of Cyclone Ditwah in the fourth quarter remains to be fully assessed, he said final growth figures would likely remain close to that level.

“Before the cyclone, our growth projections for the next few years were in the range of 4 to 5%,” Weerasinghe said. “But with the reconstruction and recovery spending now added, economic activity could be higher in 2026.”

He explained that the government had allocated Rs. 1.4 trillion for public investment in 2026, and an additional Rs. 500 billion is now expected to be added for cyclone recovery efforts. This spending, particularly in construction and related sectors, could further stimulate growth.

However, the governor cautioned that increased demand for goods, services, and labor could also drive prices higher. “There could be some upward pressure on inflation,” he said, noting that inflation had been around 2% but was expected to rise to around 5% by the third quarter of 2026. With higher demand, that increase might come sooner.

Weerasinghe also highlighted potential implications for foreign exchange reserves. As the government spends more in local currency, demand for imports, such as construction materials and fuel, is expected to rise, increasing pressure on the trade balance.

To manage that, Sri Lanka will need to boost foreign exchange earnings through exports, tourism, and possibly additional external financing through loans and grants, he said.

While the overall outlook suggests stronger growth potential, Weerasinghe stressed that the actual outcome depends on how efficiently and quickly recovery spending is implemented.

“It’s still too early to factor in everything,” he said, citing possible delays in procurement and execution. (Newswire)

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