The International Monetary Fund (IMF) has highlighted the substantial risks posed by recent U.S. tariffs on Sri Lanka's economy and outlined its support measures to help the country navigate these challenges.

Evan Papageorgiou, the IMF Mission Chief for Sri Lanka, addressed the issue during a virtual press conference, emphasizing the trade policy uncertainty and its potential impact on economic performance.

Papageorgiou said that the IMF will work with Sri Lankan authorities to assess the impact of any substantial risks and formulate specific policy responses within the contours of the existing IMF program.

"All I can say at this point is that if these risks materialize, we will work with the authorities to assess the impact of those shocks and we will support the country in formulating specific policy responses within the contours of the existing IMF program," he said.

The fourth review of the IMF program provided an opportunity to assess economic developments, review program targets, and determine the reform agenda for the period ahead. This review coincided with a significant trade policy shock, specifically the 44% tariff on Sri Lankan exports announced on April 2nd. The apparel and rubber industries, which account for a substantial share of Sri Lanka's exports to the U.S., are expected to be heavily impacted. These sectors employ a large number of workers, with the apparel industry alone employing over 320,000 workers.

Papageorgiou stressed the importance of continuous reforms and exploring additional ways to make Sri Lankan exports more marketable and appealing to a wider range of trade partners.

He highlighted the progress made by the Sri Lankan government in establishing stronger connections with bilateral trade partners, including the United States, and encouraged further action and discussions to resolve trade policy uncertainties.