Why in news?
The Executive Board of the International Monetary Fund (IMF) approved on 19 December 2025 a disbursement of Special Drawing Rights (SDR) 150.5 million (about US$206 million) to Sri Lanka under its Rapid Financing Instrument (RFI). The emergency assistance is aimed at mitigating balance‑of‑payments pressures and funding relief measures after Cyclone Ditwah caused widespread devastation in the island nation.
Background
The RFI is a facility that provides rapid, low‑access financial assistance to any IMF member facing an urgent balance‑of‑payments need. It is designed for situations where a full‑fledged economic reform programme is not necessary or feasible. Countries can access one of three windows:
- Regular window: Up to 50 percent of a country’s IMF quota can be drawn in a year for sudden external shocks.
- Large natural disasters: Access can rise to 80 percent of quota when disaster damage exceeds 20 percent of the country’s GDP.
- Food‑shock window: Available for countries experiencing severe food security crises.
Disbursements are made in a single instalment with repayment over 3.25 to 5 years. There is no ongoing programme monitoring, but countries must describe the policies they intend to implement to address the problems.
Sri Lanka’s situation
- Cyclone Ditwah: The storm struck Sri Lanka in early December 2025, killing more than 600 people, displacing over 100 000 and damaging roads, bridges and power infrastructure. The disaster compounded an already fragile economy that is recovering under a 48‑month Extended Fund Facility (EFF) programme.
- Balance‑of‑payments strain: Reconstruction requires foreign exchange for imports of food, medicine and building materials. Tourism earnings and remittances fell due to the disaster, widening the financing gap.
- IMF response: The RFI disbursement will help the government fund emergency relief and reconstruction without jeopardising fiscal discipline. The IMF urged Sri Lanka to keep emergency spending transparent and consistent with its Public Financial Management Act.
- Ongoing reforms: Discussions on the fifth review of Sri Lanka’s EFF were deferred to focus on humanitarian needs. The IMF emphasised that fiscal consolidation, restructuring of state‑owned enterprises and anti‑corruption reforms remain essential for long‑term recovery.
Significance
- The RFI provides swift liquidity to a country in distress, allowing immediate relief without the delays involved in negotiating a full programme.
- It demonstrates the flexibility of IMF resources to respond to climate‑induced disasters and support vulnerable economies.
- For Sri Lanka, the funds will help maintain foreign‑exchange reserves and ensure that reconstruction does not derail macroeconomic stabilisation.
- The assistance also underscores the need for disaster‑risk reduction and climate resilience planning in South Asian countries.
Source: NOA
