ECONOMYNEXT – The Executive Board of the International Monetary Fund will meet on December 19 to consider a loan through its Rapid Finance Instrument, a notice posted on the lender’s website said.
Sri Lanka has sought a 200 million dollar loan the the RFI after Cyclone Ditwah hit in the last week of M November.
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Next year’s spending will go up at least by 500 billion rupees, radically altering a budget for 2026 on which the current IMF program targets are based.
An IMF team is expected in January 2026 to re-negotiate a staff level agreement in line with the new fiscal picture to complete the review which was originally set for December 15.
The RFI has no reviews and is disbursed upfront.
Following a rate cut in March and generally reduced deflationary policy, the central bank has not been able to build as much reserves as initially expected, though both government and its own reserve related debt has been repaid.
In December a series of budget support loans – which do not have a domestic spending component – has been approved especially by the Asian Development Bank which will help boost reserve or help repay debt.
The central bank currently provides dollars to the government for debt repayment.
Analysts had warned that Sri Lanka cannot cut rates on historical 12 month inflation statistics and given the obligation of the central bank to collect reserves and repay debt, rates are dictated by domestic credit and reserve targets, which are set after debt repayment.
Sri Lanka’s rupee has also depreciated in 2025 amid reduced deflationary policy, and excessive purchases of dollars by the central bank for new money (monetization of the balance of payments) which analysts pointed out leads to a selective denial of convertibility to private importers.
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Given the reluctance to conduct deflationary policy and lack of sufficient requirements in the IMF’s last program to reduce the central bank’s domestic asset stock, analysts have urged the Treasury to buy its own dollars like other importers, instead of depending on the central bank.
Sri Lanka defaulted in 2022 after aggressive macro-economic policy by macro-economists involving involving rate and tax cuts to target potential output, in what is generally referred to as full employment policies. (Colombo/Dec17/2025)