Sri Lanka experienced its worst economic crisis in 2022. This crisis stemmed from poor economic management, including excessive fiscal deficits, 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 included several structural reforms and quantitative targets, mainly focused on improving fiscal management and governance.

This analysis assesses Sri Lanka’s performance against the IMF’s original projections under the programme. Although the IMF later revised its forecasts to reflect actual results, this review uses the initial figures to see how Sri Lanka progressed against the pathway that was expected at the inception of the programme.

Revenue revved up but deficit in deficit

The IMF had projected government revenue to rise to 11% of GDP in 2023 and 13.3% in 2024, averaging 12.15%. Actual performance exceeded expectations, with average revenue reaching 12.4%. This was primarily due to a stronger-than-anticipated increase in 2024, where revenue reached 13.7% of GDP compared to 11% in 2023  (See our previous analysis to find out how the revenue increased).

The IMF also expected the overall budget deficit to narrow to 8% of GDP in 2023 and 6.4% in 2024, averaging 7.2%. However, the actual average deficit was higher, at 7.6% of GDP, with the deficit declining only modestly to 8.3% in 2023 and 6.8% in 2024. While revenue aligned with projections, the higher-than-expected deficit resulted from increased government expenditure, particularly in interest payments. Non-interest expenditure, as reflected in the primary balance (discussed below), did better than IMF projections.

Higher primary balance - lower public debt

Public debt as a share of GDP declined from 111.7% in 2023 to 103.8% at the end of 2024. This outperformed the IMF’s projection of 108.5% for the same period. One contributor to this improvement was a stronger-than-expected primary balance, which rose to 0.6% of GDP in 2023 and to 2.2% in 2024, averaging 1.4% for both years. This is higher compared to the IMF’s forecasted average of 0.05%. A positive primary balance indicates that government revenue exceeded non-interest expenditure, reducing the need for additional borrowing.

Interest cost heightens – rupee strengthens

Interest costs declined to 80% of revenue in 2023 and to 66% in 2024, averaging 72.8%. However, this remains significantly higher than the IMF’s anticipated average of 60.3%. Interest payments were the main driver of the increased deficit despite revenue gains.

The largest deviation from the expected path is in the value of the currency. The Sri Lankan rupee appreciated hugely as opposed to the IMF’s expectations of significant depreciation. The 2024 year-end exchange rate stood at LKR 292.58 per USD, against the IMF projection of LKR 441.20. The strengthening of the rupee reduced the foreign currency-denominated debt burden, and is the key contributing factor to the lower debt-to-GDP ratio.

Growth flies high – inflation flies low

Sri Lanka’s GDP growth was negative 2.3% in 2023 and positive 5% in 2024. Cumulative* real GDP growth from 2022 to 2024 increased by 2.6%, significantly above the IMF’s projection of 1.5%.

Inflation also fell sharply, cumulatively the prices of the headline Colombo CPI index from 2022 to 2024 increased by only 2.2%. However, the IMF’s projections expected cumulative inflation to be 22.9%.

Current account climbs: reserves hold steady

Sri Lanka’s external current account balance turned positive in both years, recording surpluses of 1.7% and 1.2% of GDP in 2023 and 2024, respectively — averaging 1.5%. This contrasts with the IMF’s expectation of a continued deficit, indicating a notable improvement in Sri Lanka’s external position. (The current account reflects trade and financial flows, including exports, imports, income, and transfers.)

Gross official reserves** increased to USD 4,752 million by the end of 2024, closely matching the IMF target of USD 4,692 million. This reserve total excludes the USD 1.4 billion People’s Bank of China swap, which the CBSL erroneously adds to the official reserve figure it publishes.

Therefore, apart from the budget deficit 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.

Notes

* Cumulative growth for indicators like GDP or inflation over a period (e.g., 2022 to 2024) is measured by the total percentage change from the initial value at the end of 2022 to the final value in 2024. This method captures compounding effects and more accurately reflects overall change.

**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)

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.

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

Visualization by: Muaadh Himaz