While recent tariff changes pose challenges to the economic outlook, Sri Lanka should focus on diversifying its export markets and creating an investment-friendly environment to maintain stability and growth, the International Monetary Fund (IMF) said.
Krishna Srinivasan, Director of the Asia and Pacific Department, highlighted the added complexity of recent developments in Sri Lanka at the 2025 Spring Meetings of the World Bank Group and the IMF on Thursday (24).
“When you talk about uncertainty, as you just talked about, as the MD mentioned this morning, the team was in Sri Lanka not long ago, and they were in discussions with the authorities when these tariffs were announced,” Srinivasan said at the Regional Economic Outlook – Asia and the Pacific session, he added.
“So, it was quite difficult for the team to put together a macro framework that takes into account the tariffs and their impact on growth, exports, etc. So that was an example of how uncertainty is not just affecting operations with countries. So, the team is back here, and we have continued discussions with the authorities.”
He noted that the tariffs are having a particularly significant impact on key industries in Sri Lanka. “The broader issue is that this is a country that has been affected by large tariffs. There is a garment sector, a large part of the impact on the garment sector could be significant. And there are other sectors as well. So the question, really, is not just for countries like Sri Lanka, but for all countries, they can help diversify our export markets, create more integration within the region, all of these things can help diversify, you can really help mitigate the risks that come with tariffs from one country.
On investment, Srinivasan stressed the importance of supporting domestic activity without undermining fiscal discipline. “Going beyond that, in the case of Sri Lanka, I think investment can still be supported. Again, when we say investment, create an environment for domestic investment to rise, not necessarily through tax exemption incentives, keep your fiscal integration, keep your fiscal integrity intact, but promote investment by providing an environment where private investment can flourish.”
He also acknowledged the progress made under the current IMF program. “This program has led to a significant degree of macro-stability, which has led to higher growth and lower inflation. It is therefore time for Sri Lanka to embark on comprehensive structural reforms that will promote private investment and put growth on a more durable footing.”
