Sri Lanka recovery faces El Nino, war risks, IMF says

The International Monetary Fund warned Wednesday that Sri Lanka's recovery from its 2022 economic collapse could be threatened by El Nino, the Middle East war and uncertainty over global trade policy.

In a review of Sri Lanka's $2.9 billion bailout programme, the IMF said the country needed to protect the gains made since the crisis. It said Sri Lanka faced risks from uncertainty over the duration and intensity of the Middle East war, global trade policy and El Nino.

Sri Lanka's 2022 collapse was triggered by a severe foreign exchange shortage that led to a sovereign debt default.

The country's meteorology department has warned that severe drought and heavy rain are likely during the rest of the year. Officials say lower rainfall could also reduce hydroelectricity generation and force greater use of more expensive thermal power.

Sri Lanka has raised fuel prices by more than 50 percent since the United States went to war with Iran in February. The government has said it will keep subsidising fuel in October despite earlier plans to return to cost-recovery pricing.

The four-year IMF programme ends in March. Sri Lankan authorities have not decided whether to seek a new arrangement with the IMF.