| Summary: | This paper presents Sri Lanka’s Request for an Extended Arrangement under the Extended Fund Facility (EFF). The objectives of the EFF-supported program are to restore macroeconomic stability and debt sustainability, safeguarding financial stability, and stepping up structural reforms to unlock Sri Lanka’s growth potential. All program measures are mindful of the need to protect the most vulnerable and improving governance. Sri Lanka should stay committed to the multipronged disinflation strategy to safeguard the credibility of its inflation-targeting regime. As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer. The ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation. The ongoing IMF governance diagnostic mission that assesses Sri Lanka’s anticorruption and governance framework should guide a more comprehensive anti-corruption reform agenda. Close collaboration between Sri Lanka and all its creditors will be critical to expedite a debt treatment that will restore debt sustainability consistent with program parameters.
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