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ADB Approves USD 200 Million Loan for Sri Lanka’s Financial Sector Stability

The Asian Development Bank (ADB) has sanctioned a substantial USD 200 million concessional loan to assist Sri Lanka in stabilizing its finance sector, following the series of challenges stemming from the sovereign debt and economic crises that commenced in April 2022 when external debt payments were suspended.

Termed the Financial Sector Stability and Reforms Program, this initiative consists of two USD 200 million subprograms. Subprogram 1, implemented in 2023, targets short-term stabilization measures and crisis management. Meanwhile, Subprogram 2, slated for 2024, focuses on structural reforms and long-term strategies to rejuvenate growth within the banking sector.

The overarching objectives encompass enhancing the stability and governance of Sri Lanka’s banking sector, augmenting the asset quality of banking entities, and fostering sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

ADB Country Director for Sri Lanka, Takafumi Kadono, highlighted the program’s alignment with the nation’s strategy of finance sector stability and the facilitation of affordable finance for diverse sectors, aiming at fostering economic resurgence.

The initiative represents a follow-on aid from ADB’s crisis response, synchronized with the IMF’s Extended Fund Facility, designed to assist Sri Lanka in restoring financial stability. It further correlates with the government’s reform agenda, emphasizing the reinforcement of the Central Bank of Sri Lanka’s operational independence and its role as the country’s macroprudential authority.

ADB’s collaboration with the IMF and World Bank has played a pivotal role in designing targeted regulatory reforms for the banking sector, including asset quality reviews, and fortifying the deposit insurance scheme.

Complementing the loan, ADB will allocate a USD 1 million grant from its Technical Assistance Special Fund to provide advisory support, knowledge dissemination, and institutional capacity building for Sri Lanka’s Ministry of Finance and Central Bank.

This endeavor underscores ADB’s unwavering commitment to fostering a prosperous, inclusive, and resilient Asia-Pacific region, while persisting in eradicating extreme poverty through sustainable developmental efforts.

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