International Monetary Fund has warned that Sri Lanka’s economic recovery is beginning to lose momentum due to renewed global shocks, including the Middle East conflict, rising oil prices, and disruptions caused by Cyclone Ditwah.

The IMF made the observations after approving the latest US$ 695 million tranche under Sri Lanka’s Extended Fund Facility (EFF) programme.

According to the IMF, Sri Lanka’s economic growth is expected to slow to 3 per cent in 2026, compared to 5 per cent recorded in 2025, as higher global oil prices and weaker tourism earnings place additional pressure on the economy.

IMF Deputy Managing Director Kenji Okamura said the worsening global situation has increased downside risks to Sri Lanka’s recovery and could weaken the country’s external sector while driving inflation higher.

Sri Lanka is already facing rising fuel costs, pressure on electricity tariffs, and tighter monetary conditions following the recent interest rate hike by the Central Bank of Sri Lanka aimed at stabilising inflation and the rupee.

Despite these challenges, the IMF noted that Sri Lanka’s reform programme implementation has remained generally strong and helped preserve economic resilience during difficult conditions.

However, the IMF stressed that more progress is needed in key structural reforms, particularly in the electricity sector, public financial management, and revenue mobilisation.

The fund also noted that Sri Lanka had failed to meet certain continuous performance criteria related to avoiding new external payment arrears and refraining from intensifying import restrictions.

With the latest disbursement, Sri Lanka has now received approximately US$ 2.4 billion under the IMF programme so far.

The IMF further projected that Sri Lanka’s official reserves could rise to US$ 8.6 billion by the end of 2026, while inflation is expected to average around 5 per cent this year.