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The United States’ imposition of a 44% reciprocal tariff on Sri Lankan exports comes at a critical juncture for the country grappling with its worst economic crisis in decades. This move strikes at the heart of Sri Lanka’s IMF-supported recovery framework, undermining both economic stabilisation and long-term structural reform efforts.  

Under the IMF programme, Sri Lanka is required to increase government revenues, reduce debt vulnerabilities, maintain a flexible exchange rate, and stimulate export-led growth. Export performance is a cornerstone of this strategy, as foreign exchange earnings are essential for rebuilding reserves, stabilising the rupee, and financing essential imports.

The U.S. tariff creates a double bind for Sri Lanka- just as the country attempts to reform and reorient its economy, a major market closes its doors, choking off one of the few viable recovery pathways available. Without robust export access, especially to developed markets, Sri Lanka’s recovery risks being stalled or what is even worse – reversed.

The imposition of a 44 percent tariff on Sri Lankan goods drastically reduces their competitiveness in the U.S. market. This has several far-reaching implications:

First, it undermines foreign exchange generation, one of the most urgent priorities of the IMF programme. Reduced exports translate into fewer dollars entering the economy, limiting Sri Lanka’s ability to rebuild its international reserves and meet essential import needs such as fuel, medicine, and food.

Second, it threatens employment and private sector recovery. The apparel sector, which employs thousands of Sri Lankans—many of them women from rural areas—is particularly vulnerable. The loss of orders from the U.S. could result in factory closures, wage reductions, and mass layoffs, further exacerbating social hardship in a country already reeling from inflation, high taxes, and reduced subsidies.

Third, the tariff risks eroding investor confidence. A major objective of the IMF programme is to restore credibility with international creditors and investors to facilitate future access to capital markets. Trade restrictions from the country’s largest export partner send adverse signals about the stability and predictability of Sri Lanka’s external environment, potentially deterring much-needed foreign direct investment.

Lastly, and perhaps most critically, such a development could jeopardise the political sustainability of the reform agenda itself. The IMF’s framework requires the government to implement difficult and often unpopular measures, including fiscal consolidation through increased taxation and subsidy rationalisation. These reforms are more likely to succeed if accompanied by visible improvements in export performance and growth. A significant external shock like this tariff risks turning public sentiment against the programme, making it harder to sustain the momentum for reform.

In sum, the U.S. reciprocal tariff not only imposes an economic cost on
Sri Lankan exporters but also poses a strategic threat to the country’s recovery trajectory. At a time when Sri Lanka is undertaking painful adjustments under IMF guidance, coordinated international support—not punitive trade measures—should be the priority. The road to recovery is already narrow and difficult; placing further obstacles along the path risks pushing a fragile nation into renewed instability.

To counter the fallout from the U.S. tariff, the Sri Lankan government must embrace a nuanced, multi-dimensional strategy which must include direct engagement with the United States as well as seek the assistance of the IMF.

Direct engagement with the US

The government should formally engage U.S. authorities to present the case for an exemption or revision. While the probability of success may be limited, especially if the tariff is rooted in broader political calculations, the moral and economic argument is compelling.

The U.S. administration may not be aware and therefore not fully appreciate the devastating impact of such a tariff on a vulnerable, reforming economy like Sri Lanka under IMF guidance. This gap in awareness presents an opening for diplomatic engagement to persuade the US Government to reduce or completely do away with the Reciprocal Tariff on Sri Lanka’s exports.

Sri Lanka is like the proverbial man who fell from a tree only to be gored by a bull. Having barely begun its climb out of a self-inflicted economic hole, it is now being battered by forces beyond its control. The reciprocal tariff regime imposed by the United States, though not aimed at Sri Lanka specifically, threatens to undo the fragile gains the country has made under great sacrifice.

The government must act decisively—both in reaching out to the U.S. for direct negotiations and in leveraging the IMF to support its case. These are not ordinary times, and conventional diplomacy alone may not suffice. If the IMF can impose stringent reforms on Sri Lanka, it can also be asked to ensure that external factors don’t derail them.

Requesting IMF Intervention

Perhaps the most strategically significant move would be to immediately request active IMF intervention. The IMF is not merely a lender of last resort; it is a global institution tasked with promoting financial stability, equitable trade, and successful programme implementation. Given the direct threat posed by the U.S. tariff to the success of
Sri Lanka’s IMF programme, a strong case can be made for the Fund to mediate on Sri Lanka’s behalf.

The rationale for IMF engagement

There are several compelling reasons why IMF intervention is not only advisable, but arguably essential: Programme Integrity

The success of the IMF’s framework in Sri Lanka hinges on export-led recovery. The U.S. tariff undermines this core pillar, potentially leading to programme failure. Ensuring favourable external conditions is as important as domestic reforms.

Shock absorption

One of the goals of IMF frameworks is to build resilience against external shocks. Ironically, the U.S. action represents just such a shock—making a strong case for IMF engagement on
Sri Lanka’s behalf.

Fair trade principles

The IMF advocates for fair and open global trade. The disproportionate impact of a blanket reciprocal tariff on a small, recovering economy like Sri Lanka violates this ethos.

Geopolitical stability

An economically unstable Sri Lanka increases the risk of geopolitical instability in the Indian Ocean region. The United States and its allies have long expressed concerns over growing Chinese influence in the area—a concern that would only deepen if
Sri Lanka’s Western-aligned recovery plan falters.

The IMF, as both a financier and a global stabiliser, must be asked to rise to this occasion—not just with funds, but with diplomatic capital.

(javidyusuf@gmail.com)