Colombo (ECONOMYNEXT) – Sri Lanka must urgently prioritize export diversification and encourage private sector investment to sustain its fragile economic recovery, the International Monetary Fund (IMF) warned at the 2025 IMF-World Bank Spring Meetings on Friday (25 April).
Speaking at the event, Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, emphasized that sudden global policy shifts—such as recent US tariff revisions—have heightened market volatility, complicating economic planning for export-dependent nations like Sri Lanka.
Still recovering from the 2022 debt crisis, Sri Lanka’s economy remains heavily exposed to external shocks. Its garment sector, which represents nearly 45 percent of total exports, is particularly vulnerable to rising protectionism and unpredictable trade policies from major Western markets.
While acknowledging that Sri Lanka’s current IMF-supported program has stabilized inflation and helped restore growth momentum, Srinivasan stressed that deeper structural reforms are now critical. He pointed out that over-reliance on a narrow range of exports leaves the economy exposed to sudden global disruptions.
“Greater regional integration and export diversification can help cushion Sri Lanka from the impacts of tariffs or policy shifts in any single market,” Srinivasan said, identifying India and ASEAN nations as significant untapped opportunities.
Investment is another area needing urgent reform. Despite fiscal constraints, Srinivasan urged Sri Lanka to foster a more business-friendly environment without relying on unsustainable tax incentives. Instead, he suggested improving regulatory frameworks, infrastructure, and governance to unlock both domestic and foreign private capital.
The IMF’s recommendations align with recent findings from the World Bank, which flagged policy inconsistency and bureaucratic red tape as major barriers to investment inflows.
Although Sri Lanka has made notable progress under the IMF programme—including a buildup of foreign reserves and lower inflation—Srinivasan cautioned against complacency. With global trade volatility on the rise, he said Sri Lanka’s long-term economic resilience will depend not just on stabilization but on bold, sustained reforms.