The Washington-based lender said that Sri Lanka's economic recovery continued in 2011, but easy access to credit and a rigid exchange rate had helped extend long-running trade imbalances.

Last year's trade deficit hit nearly US$10 billion, or a fifth of the country's GDP, imposing a massive strain on the country's dwindling foreign reserves and leaving the island exposed to external shocks.

Since 2009 the IMF has lent Sri Lanka US$2.13 billion in an effort to reform the country's economy and improve the government's budget in the wake of a four decades-long ethic war.

The country's foreign currency reserves have been decimated, leaving little cash on hand for a government that is also running a high budget deficit.

“The authorities have recently introduced a broad package of measures,” noted the IMF's Min Zhu.