Sri Lanka experienced its worst economic crisis in 2022. This crisis stemmed from poor economic management, including excessive fiscal deficits, aggressive money printing, and the loss of access to international financial markets.
As a part of its recovery efforts, the government sought a USD 3 billion Extended Fund Facility (EFF) programme from the International Monetary Fund (IMF). The programme was mainly aimed at restoring Sri Lanka’s macroeconomic stability and debt sustainability. It included several structural reforms and quantitative targets, mainly focused on improving fiscal management and governance.
When the programme began in March 2023, the IMF outlined a projected pathway for Sri Lanka within the programme’s framework. This analysis looks at how Sri Lanka has performed in comparison to these projections.
Revenue forecast achieved — but spending deviates
Initially, the IMF expected revenue to increase to 13.3% of GDP in 2024. But government revenue rose to 13.7% in 2024 – exceeding its initial target. (See our previous analysis to find out how the revenue increased)
However, government expenditure increased to 20.5% in 2024, although the IMF projected it to be at 19.7%. The higher-than-expected government expenditure is mainly due to increased interest payments – as non-interest expenditure, shown through the primary balance in the following chart, is within the IMF’s projections.
Debt falling faster than expected — partly driven by a better primary balance
Public debt, as a share of GDP, is lower at 103.8% compared to the IMF’s initial forecast of 108.5% for 2024. This improvement is partly due to a better-than-expected primary balance – at 2.2% of GDP compared to the projected 0.8% . A positive primary balance means the government’s revenue exceeds its non-interest (or primary) expenditure, reducing the need for new borrowing.
Interest costs still heavy — a firmer rupee softens exchange rate pressure on debt
Interest costs, as a share of revenue, remain much higher at 66% compared to the IMF’s projection of 53.8% for 2024. As mentioned above, interest costs have been the main reason for increased government expenditure, even though revenue is in line with projections.
The Sri Lankan Rupee exchange rate against the US dollar has deviated significantly from the IMF’s projections. The annual average exchange rate in 2024 stands at 302 LKR/USD, while the IMF projected it to rise to 441. This too has helped reduce the public debt-to-GDP ratio, as the figures are measured in Rupee terms.
Growth outpaced projections — while inflation stayed well below expectations
Real GDP growth in 2024 increased to 5% - well outpacing projections by 3 percentage points.
Meanwhile, inflation has fallen sharply: the initial IMF projection for 2024 was 8.7%, but actual annual average inflation is 1.2%.
External Position Stronger — Positive Current Account, Reserves in Line with IMF Projections
Sri Lanka’s external current account balance, as a share of GDP, turned positive in 2023 and 2024—in contrast to the IMF’s projection of negative balances. (The current account measures the country’s trade and financial flows with the rest of the world — including exports and imports of goods and services, income payments, and transfers)
Gross official reserves remained close to IMF projections during 2023 and 2024.
Apart from government expenditure and interest costs (as a share of revenue), the majority of key fiscal indicators remain consistent with — or have exceeded — the IMF’s initial projections set in March 2023.
Note: The IMF’s projections are based on the initial report that approved the Sri Lankan government’s request for an EFF in March 2023. These projections were later amended by the IMF based on actual economic outcomes.
The gross official figure cited here differs from the one that is officially reported by the CBSL. The discrepancy arises due to CBSL’s inclusion of a PBoC swap in the reserve figure that does not meet the criteria of a gross reserve. (See Factcheck Explainer)
Sources
International Monetary Fund ‘Sri Lanka: Request for an Extended Arrangement Under the Extended Fund Facility—Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka’ 20 March 2023 at https://www.imf.org/en/Publications/CR/Issues/2023/03/20/Sri-Lanka-Request-for-an-Extended-Arrangement-Under-the-Extended-Fund-Facility-Press-531191 [last accessed 18 June 2025].
Research By: Sadini Galhena and Anushan Kapilan
Visualisation By: Sadini Galhena and Chamelie Epa