World Bank approves a concessional funding request by Sri Lanka

The World Bank has approved a concessional funding request by Sri Lanka from the International Development Association. The funding will enable the country, which is currently in an economic crisis, to achieve stability.

World Bank approves a concessional funding request by Sri Lanka

Economic challenges have plagued Sri Lanka over the past year. Skyrocketing inflation levels, a weak currency, and low foreign exchange reserves have left the country struggling to meet financial demands for imports of essential products such as food, fuel, and medicine.

Using the IDA will make it possible for Sri Lanka to receive concessional financing, technical help, and advice about policies from the World Bank. The global financial institution will support Sri Lanka in implementing reforms that will lead the country toward economic recovery.

By receiving concessional financing from the World Bank, the country will also be in a position to alleviate the debt service pressures. This type of funding comes with favorable terms, making it easier to manage than the other external debts.

IMF’s $2.9 billion bailout for Sri Lanka

The World Bank is joining the list of global financial bodies that are chipping in to come up with the best way forward to support the recovery of the Sri Lankan economy. In September this year, the International Monetary Fund said that it had reached a preliminary agreement with the Sri Lankan government to give the country access to $2.9 billion in funding to help the country pay for crucial imports while achieving financial stability.

At the time, the IMF said that funds proposed for the bailout would be released after a few months. However, the institution noted that before the fund was approved by senior management, the country’s president needed to garner support from the constituents and the debtholders, as this would make it easier to achieve economic recovery.

This agreement was viewed as one of the largest steps in supporting the South Asian country that has been marked with economic and political turmoil. The adverse economic environment saw the former president of the country, Gotabaya Rajapaksa, being ousted after furious protests.

The IMF also noted that Sri Lanka had agreed to make changes in the domestic economy to raise funds needed to facilitate recovery. One of the agreements reached is to increase taxes for high-income individuals and corporations. Moreover, the government also agreed to hike fuel prices while cushioning the poor, who were the most affected by the financial crisis in the country.

The fund officials further noted that this bailout depended on whether Sri Lanka would receive debt relief concessions from lenders such as private-sector bondholders. Such concessions seem to be arriving, as seen in the latest deal by the World Bank.

The economic turmoil in Sri Lanka saw the country’s inflation rates increase by almost 60%. The country’s economy is expected to shrink by 8.7% this year.