The International Monetary Fund (IMF) has underscored the upcoming 2026 Budget as a key element in Sri Lanka’s ongoing economic reform program, describing it as a "very, very important part" of the process under the Extended Fund Facility (EFF).

Responding to a question raised by Ada Derana during the press briefing on the completion of the Fourth Review, IMF Mission Chief for Sri Lanka, Evan Papageorgiou, said discussions on the 2026 Budget will be central to the Fifth Review and must align with revenue, expenditure, and fiscal targets agreed under the program.

“Obviously, one important one will be the 2026 Budget which is coming up. The discussions are coming up. This is a very, very important part of the program,” Papageorgiou stated.

He noted that although it’s still early, the Fifth Review will follow the standard IMF process of assessing both past performance and future commitments. This includes meeting quantitative performance criteria and structural benchmarks for the test period ending June 2025 and through to December 2025.

Among the key reform priorities, Papageorgiou highlighted tax policy changes such as the repeal of the Simplified VAT (SVAT), revisions to tax exemptions, particularly for special zones like the Port City, and improvements to customs administration. Structural reforms in state-owned enterprise (SOE) governance and energy pricing also remain critical.

Addressing the question on SOEs, Papageorgiou emphasized that the IMF continues to monitor efforts to reduce fiscal risks from loss-making public enterprises. Measures include maintaining cost-recovery pricing for electricity and fuel, curbing foreign currency borrowing by non-financial SOEs, and enhancing transparency through audited financial disclosures of the 52 largest SOEs.

The IMF will begin preliminary staff-level discussions with Sri Lankan authorities ahead of the Fifth Review to define upcoming priorities and assess the economic outlook.

The Fourth Review, approved this week by the IMF Executive Board, unlocked a further US$350 million in funding, bringing total disbursements under the EFF to approximately US$1.74 billion.