World Bank Grants USD 700 Million to Aid Sri Lanka's Economic Recovery

COLOMBO: In a move to address the severe economic crisis and provide assistance to the impoverished and vulnerable population of Sri Lanka, the World Bank has approved a substantial financing package of USD 700 million. This funding marks the largest tranche of financial aid received since the International Monetary Fund (IMF) granted USD 2.9 billion to the country in March of the same year.

Sri Lanka, currently grappling with its worst economic downturn in history, witnessed a contraction of over 7% in GDP in 2022. This decline can be attributed to widespread mass protests across the nation, which also led to the political expulsion of the influential Rajapaksa family. The economic distress and political upheaval have left the country cash-strapped and in urgent need of support.

The World Bank, headquartered in Washington, announced its decision to provide USD 700 million in financing through a press statement. This financial assistance is aimed at helping Sri Lanka overcome its economic crisis, while simultaneously offering aid to the poor and vulnerable segments of society. The funding has been divided into two key components: USD 200 million for social security and USD 500 million for fiscal support.

In March, the IMF approved a significant bailout program amounting to USD 3 billion, with the objective of aiding Sri Lanka in overcoming its economic challenges and catalyzing financial support from other development partners. The Sri Lankan government warmly welcomed this assistance as a "historic milestone" during such a critical period.

The catastrophic economic and humanitarian crisis faced by Sri Lanka is a consequence of years of mismanagement compounded by the ongoing COVID-19 pandemic. Recognizing the urgency of the situation, the World Bank's Board of Directors approved the financing to enable the implementation of crucial reforms. These reforms are aimed at restoring macroeconomic stability, ensuring sustainability, mitigating the impact of present and future shocks on the poor and vulnerable, and fostering an inclusive recovery and growth trajectory led by the private sector.

The World Bank's funding comprises two operations to facilitate the necessary reforms. The Sri Lanka Resilience, Stability, and Economic Turnaround (RESET) Development Policy Operation, amounting to USD 500 million, will support reforms that enhance economic governance, competitiveness, and growth, while protecting the most vulnerable. This operation will provide budget support in two equal tranches, subject to agreed-upon prior actions.

Additionally, the World Bank's Board of Directors also discussed the new Country Partnership Framework (CPF) for Sri Lanka. The CPF aims to restore economic and financial sector stability while laying the groundwork for a green, resilient, and inclusive recovery. This framework recognizes the dire economic crisis that Sri Lanka is navigating, which has had devastating consequences for people's lives and livelihoods. Therefore, it emphasizes the urgent need for profound reforms to stabilize the economy and protect the poor and vulnerable.

It is worth mentioning that Sri Lanka has witnessed a significant increase in poverty rates, with estimates indicating a doubling from 13.1% to 25% between 2021 and 2022. This represents an addition of 2.5 million individuals living in poverty. Moreover, projections suggest a further increase of 2.4 percentage points in poverty rates in 2023.

In conclusion, the World Bank's approval of USD 700 million in financing is a crucial step towards supporting Sri Lanka's economic recovery, promoting stability, and providing relief to the country's poor and vulnerable populations. This funding aims to enable the implementation of essential reforms that restore macroeconomic stability, foster growth, competitiveness, and protect those most affected by the ongoing crisis.

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