The World Bank, on Thursday (June 28), approved USD 700 million in financing as budgetary and welfare support for Sri Lanka.
This is the biggest funding trance for the island nation since the International Monetary Fund (IMF) bailout package in March.
Through this funding, the World Bank said it aims to help Sri Lanka implement foundational reforms that restore macroeconomic stability and sustainability, mitigate the impact of current and future shocks on the poor and vulnerable, and support an inclusive and private sector-led recovery and growth path.
Thereby, USD 500 million of the funds will be allocated for the ‘Sri Lanka Resilience, Stability & Economic Turnaround (RESET) Development Policy Operation’ which will support reforms that improve economic governance, enhance growth and competitiveness, and protect the poor and vulnerable.
This operation will provide budgetary support in two equal tranches against agreed prior actions.
Meanwhile, welfare support of USD 200 million will be earmarked for the ‘Social Protection Project’ which 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 program.
The funding was green-lighted when the World Bank Group’s Board of Executive Directors met for a discussion on the new Country Partnership Framework (CPF) for Sri Lanka on Thursday.
The CPF comes at a time when Sri Lanka is navigating its worst economic crisis since its independence from Britain in 1948 after its foreign exchange dipped to record lows, resulting in its first foreign debt default in 2022.
Covering the years 2024-2027, 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.
In March 2023, the IMF approved nearly USD 3 billion which Sri Lanka expects will bring additional funding of up to USD 4 billion from the World Bank, Asian Development Bank and other multilateral agencies.
Speaking on the USD 700 million in financing green-lighted for the island nation, the World Bank Country Director for Sri Lanka said, the CPF offers a ‘historic opportunity’ for deep reforms to reset the country’s economic storyline.
“Through a phased approach, the World Bank Group strategy focuses on early economic stabilization, structural reforms, and protection of the poor and vulnerable,” Zervos said further.
If sustained, these reforms can put the country back on the path towards a green, resilient and inclusive development, he added.