The inadvertent provision of inaccurate data by Sri Lanka regarding the central government’s expenditure arrears was a key issue addressed during the International Monetary Fund’s (IMF) fourth review of the country’s Extended Fund Facility (EFF) arrangement.

Deputy Managing Director and Acting Chair of the International Monetary Fund (IMF), Kenji Okamura, said the under-reporting of arrears, which affected the first three reviews, also led to noncompliant purchases and a breach of obligations under Article VIII, Section 5 of the IMF’s Articles of Agreement.

The discrepancies stemmed from delayed reporting by line ministries and a misinterpretation of the definition of arrears under the program’s technical memorandum, the IMF said. 

“The inaccuracies in information provided to the IMF were inadvertent and arose because of weaknesses in the timely reporting of arrears by line ministries to the Ministry of Finance, as well as a misunderstanding by the authorities of the definition of ‘arrears’ under the Technical Memorandum of Understanding,” he said.

In response, Sri Lankan authorities implemented corrective measures and committed to strengthening public financial management and data verification, he added. 

The IMF official said that the Executive Board positively considered the corrective actions, and the fact that arrears repayments will be accommodated within the existing fiscal envelope.

“The Executive Board also positively considered the authorities’ commitment to improving public financial management procedures in line with the new PFM law, to reduce the risk of accruing arrears or inaccurate reporting of information going forward,” he said. 

Kenji Okamura further said that given the above, the Executive Board agreed to grant waivers for the nonobservances of the quantitative performance criterion that gave rise to the noncomplying purchases and decided not to require further action in connection with the breach of obligations under Article VIII, Section 5.

The IMF Deputy Managing Director and Acting Chair issued the statement, following the Executive Board’s discussion after the completion of the fourth review under the 48-month Extended Fund Facility (EFF) Arrangement for Sri Lanka.

This allows Sri Lankan authorities to draw about US$350 million and brings the total IMF financial support disbursed so far to about US$1.74 billion.

Full report: https://www.imf.org/en/News/Articles/2025/07/02/pr24235-sri-lanka-imf-executive-board-completes-the-fourth-review-under-the-eff  (Newswire)

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

“The Executive Board of the International Monetary Fund (IMF) reviewed noncomplying purchases made by Sri Lanka under the 2023 Extended Arrangement under the Extended Fund Facility (“EFF”), as well as a breach of obligations under Article VIII, Section 5. The noncomplying purchases arose as a result of the provision of inaccurate information by the authorities on the stock of expenditure arrears at the first, second, and third reviews under the EFF.

“The inaccuracies in information provided to the IMF were inadvertent and arose because of weaknesses in the timely reporting of arrears by line ministries to the Ministry of Finance, as well as a misunderstanding by the authorities of the definition of “arrears” under the Technical Memorandum of Understanding.

“The Executive Board positively considered the authorities’ corrective actions, the fact that arrears repayments will be accommodated within the existing fiscal envelope, and the authorities’ commitment to improving public financial management procedures in line with the new PFM law, to reduce the risk of accruing arrears or inaccurate reporting of information going forward. In view of the above, the Executive Board agreed to grant waivers for the nonobservances of the quantitative performance criterion that gave rise to the noncomplying purchases and decided not to require further action in connection with the breach of obligations under Article VIII, Section 5.”

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It is essential to continue Sri Lanka’s reform momentum under strong ownership by both the authorities and the people, Kenji Okamura, Deputy Managing Director of the International Monetary Fund (IMF) said yesterday.

Kenji Okamura further welcomed the Sri Lankan authorities’ strong commitment to implement their ambitious economic program which is supported by the IMF. 

“The economic reform program aims to achieve macroeconomic stabilization, restore debt sustainability, safeguard financial stability, strengthen governance, and protect the vulnerable,” he said.

Okamura added that Sri Lanka’s economy is showing tentative signs of improvement, in part due to the implementation of critical policy actions.

He made the remarks in Colombo yesterday at the conclusion of his recent visit to Sri Lanka.

The visit comes following the approval on March 20, 2023, by the IMF Executive Board a 48-Month arrangement of about US$ 3 billion under the Extended Fund Facility (EFF) with Sri Lanka.

The full statement of Kenji Okamura: 

“I wish to thank President and Minister of Finance Wickremesinghe, Governor Weerasinghe, Speaker Abeywardhana, Minister of Foreign Affairs Sabry, Minister of Justice Rajapakshe, State Minister of Finance Semasinghe, State Minister of Investment Promotion Amunugama, Secretary to the Treasury Siriwardana, and senior government officials for their hospitality, and parliamentarians and representatives of the private sector for their engagement. I very much appreciated the constructive discussions I had during my visit, which allowed me to deepen my understanding of the challenges Sri Lanka is facing and to reiterate the IMF’s commitment to support Sri Lanka’s efforts to surmount these challenges.

“I welcomed the authorities’ strong commitment to implement their ambitious economic program which is supported by the IMF. The economic reform program aims to achieve macroeconomic stabilization, restore debt sustainability, safeguard financial stability, strengthen governance, and protect the vulnerable. Sri Lanka’s economy is showing tentative signs of improvement, in part due to the implementation of critical policy actions. But the economic recovery remains challenging. Now, more than ever, it is essential to continue the reform momentum under strong ownership by both the authorities and the Sri Lankan people.

“The current economic crisis has its genesis in policy missteps aggravated by external shocks. We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability. I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner. Continued open dialogue with the creditors will help to reach restructuring agreements to restore debt sustainability in line with the program targets. Undoubtably, safeguarding the stability of the financial sector is of utmost importance in this process.

“I had the privilege to visit the Parliament building, an architectural marvel, designed by Sri Lanka’s very own renowned architect. While meeting with the Parliamentarians, we discussed the importance of strengthening governance, which is a central pillar of the program. The hard-won gains of Sri Lankan people who have relentlessly supported the reform effort can only be safeguarded by good governance.

“During my visit to the dock yard, port terminal, and the port city, I was impressed to see continued economic activity which is a testament to the resiliency of the Sri Lankan economy. I underscored the importance of decisive implementation of structural reforms which can attract investment and boost growth.

“As Sri Lanka navigates its way through the economic crisis, it remains imperative to protect the poor and the most vulnerable that have been disproportionately affected by the crisis. I was heartened to see that the authorities’ have stepped up efforts to increase public spending on social safety nets while improving targeting and coverage for those who need it.

“Lastly, I very much appreciate the excellent, long-standing relations between Sri Lanka and the IMF, and look forward to our continued partnership through the EFF-supported economic program. I will leave Colombo with fond memories of the country and its welcoming people.” (NewsWire)

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