Sri Lanka is gradually emerging from a severe financial crisis, anticipating a significant boost from the Asian Development Bank (ADB) following the International Monetary Fund’s (IMF) approval of a $2.9 billion bailout package. A staggering $600 million is set to be disbursed to the crisis-hit nation, confirmed by an official on Tuesday.
Triggered by alarmingly low foreign exchange reserves last year, Sri Lanka witnessed a sharp economic contraction of 7.8% in 2022, marking one of its most challenging financial periods in decades.
With the economy showing signs of stabilization after entering a four-year program with the IMF in March, the imminent approval of the first review by the IMF is expected to unleash the release of approximately $334 million in funding, constituting the second tranche of the bailout.
Takafumi Kadono, the Country Director at ADB’s Sri Lanka Resident Mission, revealed plans for extensive support, outlining a projected total budget assistance of $2 billion over the upcoming four years.
Kadono emphasized, “I would say $500 million to $600 million budget support is what is planned (for 2024) but, again, it is subject to attainment, satisfying the policy actions, so it’s not free money.”
The proposed assistance is slated to primarily encompass policy-based loans and project lending, with an initial $200 million set for ADB Board approval on Dec. 8. However, disbursement to Sri Lanka will only follow the IMF’s scheduled approval on Dec. 12.
Future disbursements are earmarked for specific sectors: $200 million designated for power sector reforms in 2024, $100 million allocated to the water sector, and an estimated $50-$70 million intended for the tourism sector.
Furthermore, ADB aims to extend $100 million to enhance access to financing for small and medium-sized enterprises, alongside an additional $100 million directed towards improving public finance and debt management.
Highlighting the imperative need for continued commitment to reforms outlined in the IMF program, Kadono stressed the significance of restructuring loss-making state enterprises, curbing budget deficits, and enhancing governance.
“These are not band-aid measures. I think Sri Lanka has done a lot of that in the past so, I think it’s really time to fix the fundamentals of the economy and to address these latent weaknesses in the economy and the institutions,” Kadono stated emphatically.
