Sri Lanka’s hard-won economic recovery at risk from El Nino and Middle East war, says IMF

A general view of the Lotus Tower in Colombo, Sri Lanka. The IMF warned that the Middle East war and El Nino could threaten Sri Lanka’s economic recovery. — AFP pic

First Published: Wednesday, 23 Sep 2026 5:20 PM MYT

COLOMBO, Sept 23 — Sri Lanka’s recovery from the worst economic crisis in its history could be upended by the El Nino climate phenomenon and fallout from the Middle East war, the IMF warned today.

The South Asian nation’s economic collapse of 2022 was triggered by a severe foreign exchange shortage that led to a historic sovereign debt default.

In a review of the US$2.9 billion (RM11.83 billion) bailout programme, the International Monetary Fund said safeguarding the hard-won gains made since the 2022 crisis was crucial.

“Sri Lanka continues to face downside risks from uncertainty over the duration and intensity of the war in the Middle East, global trade policy and the impact of El Nino,” the IMF said in a statement.

El Nino is a naturally occurring climate pattern associated with warmer ocean temperatures in the Pacific that can change wind and rainfall patterns around the world.

Scientists say human-caused climate change can amplify its effects by making more energy and moisture available to fuel extreme weather.

Sri Lanka’s meteorology department has warned that both severe drought and heavy rain are likely to hit the country during the remainder of the year as the largely agricultural nation faces what officials call its worst-ever El Nino.

At the weekend, the Sri Lankan air force flew Buddhist monks to pray and sprinkle holy water over drought-hit areas in an attempt to encourage rain.

A drop in rainfall could also affect hydroelectricity generation and force the use of more expensive thermal power generators, officials say.

Sri Lanka has raised fuel prices by more than 50 per cent since the US went to war with Iran in February.

The government has said it will continue to subsidise fuel in October, despite earlier plans to return to cost-recovery pricing.

“Safeguarding macroeconomic stability in a shock-prone environment requires unwavering commitment to prudent policies and reforms to rebuild fiscal and external buffers,” the IMF said.

The four-year IMF loan programme comes to an end in March, and authorities have yet to decide whether they want a fresh arrangement with the Washington-based institution. — AFP