Sri Lanka gets $700mn from World Bank months after India’s extended credit line for economic recovery

In the south of the Indian subcontinent, Sri Lanka heaved a sigh of respite after the World Bank approved $700 million in budgetary and welfare support for the island nation. The biggest funding tranche for the crisis-hit nation comes months after India extended a $1 billion credit line to the crisis-hit nation in a region where Pakistan is also struggling to secure $1 billion in IMF funding before June 30.

For Sri Lanka, the current relief comes after an International Monetary Fund (IMF) deal for nearly $3 billion in bailout in March.

About $500 million of the funds will be allocated for budgetary support while the remaining $200 million will be for welfare support earmarked for those worst hit by the crisis.

“Through a phased approach, the World Bank Group strategy focuses on early economic stabilisation, structural reforms, and protection of the poor and vulnerable,” the World Bank’s country director for Sri Lanka, Faris Hadad-Zervos, said in an official statement.

“If sustained, these reforms can put the country back on the path towards a green, resilient and inclusive development,” Zervos said.

Sri Lanka’s economic crisis

The island nation in India’s south is currently struggling with the worst financial crisis since its independence from Britain in 1948. The country’s foreign exchange hit record lows and triggered its first foreign debt default last year, followed by mass protests against the then ruling president. 

Also watch | Sri Lanka battles its worst economic crisis in 70 years

The IMF approved a bailout of nearly $3 billion in March. Sri Lanka expects that IMF’s assistance will bring additional funding of up to $4 billion from the World Bank, the Asian Development Bank and other multilateral agencies.

Sri Lanka will reportedly release a domestic debt restructuring programme this week to push forward reworking its debt with bondholders and bilateral creditors including China, Japan and India.

Sri Lanka’s economic recovery: India’s role in spotlight too

As part of $4 billion in emergency assistance, India has extended a $1 billion credit line for Sri Lanka by one year until 2024.

Sri Lanka owes $7.1 billion to bilateral creditors, according to the government data. The country owes $3 billion to China, $2.4 billion to the Paris Club and $1.6 billion to India.

Meanwhile, India and Sri Lanka have also stepped up their talks to proceed with trade in Indian Rupee as New Delhi and Colombo look set to expand their bilateral cooperation in “power and energy sector as well as aspects relating to Rupee trade”.