Sri Lanka earning back investor confidence, says IMF

• Calls for continued fiscal discipline
• Stresses importance of developing domestic capital markets to reduce reliance on external borrowing
• Says frontier economies can obtain financing through domestic means rather than over-relying on external funding

Sri Lanka’s progress in improving economic performance and rebuilding invwestor confidence following its debt restructuring received thumbs up from the International Monetary Fund (IMF) this week. However, the Fund cautioned that frontier markets such as the island nation must sustain reforms amid lingering global financial risks.

“Sri Lanka has been emerging from a debt restructuring and is on the path to growth and to restoring confidence. When we look at global markets relative to frontier economies, so those are low-income countries with market access, we do see that financial conditions are fairly easy, so there is liquidity. 

“Countries can access markets. Indeed, we have seen quite a bit of issuance this year. That is in line with historical standard, said IMF Monetary and Capital Markets Department Director Tobias Adrian. Adrian made these comments while responding to a question posed at press briefing held following the launch of the Global Financial Stability Report (GFSR) during the IMF–World Bank Annual Meetings 2025.However, the Fund cautioned that the relatively benign market conditions could mask deeper vulnerabilities. In his opening remarks, Adrian pointed to stretched asset prices, exposure within nonbank financial institutions, and rising long-term bond yields linked to fiscal concerns as key risks to global financial stability. 

“While financial conditions are easy, the macrofinancial risks remain somewhat elevated,” he stressed.

Assistant Director Jason Wu echoed Adrian’s sentiments, stressing that frontier economies must stay focused on strengthening fundamentals despite recent progress. 

“The softer dollar has lessened external pressure but now is not the time to be complacent.  “Frontier economies need to continue to improve economic fundamentals, that includes both on the current account as well as fiscal buffers rebuilding,”Wu said. He went on to assert that the importance of developing domestic capital markets to reduce reliance on external borrowing. According to the Fund, frontier economies can obtain financing through domestic means rather than over-relying on external funding, and such reforms would help channel local savings toward productive investment and strengthen financial resilience.

Sri Lanka is continuing to implement reforms under its US$3 billion Extended Fund Facility. While signs of recovery are emerging, the IMF, and other international agencies, have repeatedly asserted that maintaining discipline and deepening reforms will be crucial to turning short-term recovery into long-term stability. (SAA)