World Bank approves US $ 700mn loan for Sri Lanka; adopts new CPF

• US $ 500mn of loan will come as budget support and balance US $ 200mn to support social protection

The World Bank Board of Directors has approved US $ 700 million in financing for Sri Lanka through the International Development Association (IDA).

US $ 500 million of the loan will come as budget support and the balance US $ 200 million to support social protection.

The World Bank said Sri Lanka Resilience, Stability and Economic Turnaround (RESET) Development Policy Operation (US $ 500 million) would support reforms that help improve economic governance, enhance growth and competitiveness and protect the poor and vulnerable. It will provide budget support in two equal tranches against agreed prior actions.

The Social Protection Project (US $ 200 million) seeks to support Sri Lanka in providing better-targeted income and livelihood opportunities to the poor and vulnerable and improving the responsiveness of the social protection system. The active World Bank portfolio as of June 26 is composed of IBRD financing worth US $ 1.09 billion and IDA financing worth US $ 1.17 billion. Sri Lanka lost IBRD creditworthiness and cannot access additional
IBRD financing.  Upon the government’s request, a reverse graduation to regain access to IDA concessional financing was approved. Until IBRD creditworthiness is re-established, Sri Lanka will have access only to IDA resources. Meanwhile, the World Bank Group has approved a new Country Partnership Framework (CPF) for Sri Lanka for the period of 2024-2027.

This CPF comes at a time when the country is navigating a severe economic crisis that is having devastating impacts on people’s lives and livelihoods and which demands deep reforms to stabilise the economy and protect the poor and vulnerable.

Sri Lanka’s poverty rate is estimated to have doubled from 13.1 percent to 25 percent between 2021 and 2022—an addition of 2.5 million poor people—and is projected to increase by another 2.4 percentage points in 2023.

“The extent of the crisis in Sri Lanka is unprecedented but offers a historic opportunity for deep reforms to reset the country’s economic storyline,” said World Bank Country Director for Sri Lanka Faris H. Hadad-Zervos. 

“The CPF supports this shift. Through a phased approach, the World Bank Group strategy focuses on early economic stabilisation, structural reforms and protection of the poor and vulnerable. If sustained, these reforms can put the country back on the path towards a green, resilient and inclusive development.”

The CPF lays out a two-phased approach that starts with a focus on urgent macro-fiscal and structural reforms and support to protect the human capital and most vulnerable population. 

After the first 18-24 months and subject to successful implementation of the reform programme and international debt relief and financial support, the CPF focus will gradually shift to investments in longer-term development needs that will help promote private sector job creation—particularly for women and youth—and boost resilience to climate and external shocks.

“A strong and engaged private sector is crucial for Sri Lanka, especially in overcoming the economic crisis. Sri Lankans urgently need jobs and livelihood opportunities to rebuild lives affected by the crisis,” said Acting Regional Director for IFC South Asia Shalabh Tandon. 

“Promoting private sector-led growth is therefore critical in revitalising the economy. The IFC’s focus for Sri Lanka will be on supporting export-oriented sectors, promoting climate financing and enabling digitisation – all of which will foster inclusive, resilient and sustainable growth.” To prepare the CPF, the World Bank Group held extensive countrywide and online consultations with key stakeholder groups, including the government, private sector, civil society, think tanks, academia, media and other development partners. 

The CPF will leverage the close cooperation across the World Bank, IFC and MIGA and with development partners.