The Executive Board of the International Monetary Fund (IMF) has concluded the Article IV consultation with Sri Lanka on February 25, 2022. They have observed country was highly vulnerable to external shocks owing to inadequate external buffers and high risks to public debt sustainability, exacerbated by the Easter Sunday terrorist attacks in 2019 and major policy changes including large tax cuts in late 2019.
Despite several positive measurements, the outlook is subject to large uncertainties with risks tilted to the downside. Unless the fiscal and balance-of-payments financing needs are met, the country could experience significant contractions in imports and private credit growth, or monetary instability in case of further central bank financing of fiscal deficits.