The Asian Development Bank (ADB) has recently approved a special policy-based loan of $350 million to provide budget support to Sri Lanka, as the cash-strapped country continues to face a long and challenging road to economic recovery. This loan program, sanctioned by the Manila-based ADB, is part of a broader financial assistance package, anchored by the International Monetary Fund’s (IMF) Extended Fund Facility.
Sri Lanka has been grappling with a severe and unprecedented economic crisis, characterized by high inflation, eroded purchasing power, and reversed development gains. The country, burdened with staggering debt, has been striving to stabilize its crisis-hit economy ever since it declared its first-ever debt default in April last year. In response to the crisis, the IMF extended a nearly $3 billion bailout facility to help mitigate the economic shocks.
Expressing concern over the deep crisis and its impact on the people of Sri Lanka, especially the poor and vulnerable, ADB President Masatsugu Asakawa emphasized the bank’s commitment to standing with Sri Lanka in addressing its challenges and working towards economic stabilization, sustainable recovery, and inclusive growth.
The ADB acknowledged the bold reforms initiated by Sri Lanka to address internal and external imbalances and restore a sustainable debt trajectory. However, the road to recovery remains long and arduous, necessitating the steadfast implementation of necessary reforms. The statement highlighted the importance of transparency and open communication in building consensus around these reforms.
In 2022, the ADB provided emergency assistance of $334 million, repurposing existing loans to support the import of essential items such as fertilizers, medicines, chemicals for water treatment, and working capital for small and medium-sized enterprises. Additionally, cash transfers were made to assist the most poor and vulnerable segments of society. Trade finance lines through the ADB Trade and Supply Chain Finance Programme played a crucial role in facilitating the import of essential goods during the crisis.
Sri Lanka’s total debt currently stands at $83.6 billion, with $42.6 billion in foreign debt and $42 billion in domestic debt. The government aims to complete its debt restructuring program by September this year, bringing the bankrupt economy to a stable level. Discussions on the reworking of both domestic and external debt are expected to conclude by July or August 2023.
The approval of the ADB loan provides a lifeline to Sri Lanka’s ongoing economic stabilization efforts. It reflects the international community’s recognition of the country’s challenges and the importance of concerted support in helping it overcome the crisis. As Sri Lanka forges ahead with reforms and works towards a sustainable recovery, collaboration among the government, development partners, and stakeholders will be crucial in addressing structural impediments and planning future support.
While Sri Lanka faces significant economic challenges, the ADB’s approval of the loan underscores its commitment to assisting the country in its journey towards stability, recovery, and inclusive growth. By providing budget support and engaging in comprehensive efforts, Sri Lanka can navigate the road to economic revitalization and secure a brighter future for its citizens.