LNP – World Bank grants Sri Lanka $1.0bn loan

Colombo (AFP): Sri Lanka has been granted a billion-dollar loan to boost its agriculture, tourism and energy sectors, the World Bank said on Wednesday, as the country emerges from an unprecedented economic crisis.

Sri Lanka’s economy collapsed in 2022 when it ran out of foreign exchange to finance even the most essential imports such as food, fuel, and medicines.

The loan aims to strengthen local industries and attract private capital for growth, the World Bank said in a statement after its President Ajay Banga met with Sri Lankan President Anura Kumara Dissanayake in Colombo.

“With progress underway to stabilise the economy and restart growth, core elements for job creation are in place,” Banga said in the statement.

The loan will be spread over three years, it added.

The economic crisis led to months of street protests that forced then-president Gotabaya Rajapaksa to step down. His successor, Ranil Wickremesinghe, negotiated a $2.9 billion bailout package from the International Monetary Fund.

The four-year bailout loan from the IMF helped shore up the country’s revenues and cleared the way for the government to reschedule foreign debt after a sovereign default on $46 billion of external borrowings in April 2022.

“Now is the time to accelerate reforms and create the conditions for private enterprise to thrive – particularly in sectors that can create jobs at scale,” Banga said.

The World Bank warned last month that Sri Lanka’s population was living in poverty despite the economy making a “remarkable recovery” from its worst financial crisis.

The South Asian nation’s growth surpassed the Bank’s forecast of 4.4 percent, recording 5.0 percent in 2024 – the first economic expansion since the 2022 crisis.

The IMF warned earlier this month that Sri Lanka’s recovery could be undermined if punishing US tariffs were reinstated.

The United States is Sri Lanka’s largest single market, accounting for almost a quarter of its $12 billion in merchandise exports. The trade balance is heavily in favour of the small South Asian nation.

Washington imposed a 44 percent “reciprocal tariff” on the island nation before putting it on hold for 90 days.

Sri Lanka has not retaliated but has instead appealed for negotiations with Washington.