World Bank rules out bridging finance to Sri Lanka until it gets its policy framework in order

The World Bank has ruled out bridging finance or new loan commitments to crisis-hit Sri Lanka until the nation’s economy sets up an adequate macroeconomic policy framework.

The World Bank issued a report on Tuesday following claims that the Washington-based institution was planning to support Sri Lanka to overcome the financial crisis in the form of a bridge loan or new loan commitments.

However, the WB has said that it is reshuffling the already allocated resources to provide essential medicines and other cash assistance to the vulnerable.

“Recent media reports have inaccurately stated that the World Bank is planning support for Sri Lanka in the form of a bridge loan or new loan commitments among other incorrect assertions,” the WB has said in a statement.

“We are concerned for the people of Sri Lanka and are working in coordination with the IMF and other development partners in advising on appropriate policies to restore economic stability and broad-based growth. Until an adequate macroeconomic policy framework is in place, the World Bank does not plan to offer new financing to Sri Lanka,” it said.

It expressed hope that Sri Lanka is making continuous efforts towards economic stability.

“We are currently repurposing resources from previously approved projects to help the government with some essential medicines, temporary cash transfers for poor and vulnerable households, school meals for children of vulnerable families, and support for farmers and small businesses,” the statement said.

Sri Lanka is near bankruptcy and has severe shortages of essentials from food, fuel, medicines and cooking gas to toilet paper and matchsticks. For months, people have been forced to stay in long lines to buy the limited stocks.

Sri Lanka has suspended repayment of about $7 billion in foreign loans due this year out of $25 billion to be repaid by 2026. The country’s total foreign debt is $51 billion.

Sri Lanka, in the midst of its worst economic crisis, has started a negotiating programME with the IMF.

The country however is in need of $4-5 billion bridging finance to arrest the crisis where shortages of essentials had led to street rioting.

Sri Lanka’s economic crisis has created political unrest with a protest occupying the entrance to the president’s office, demanding his resignation continuing for the past 40 days. The crisis has already forced Prime Minister Mahinda Rajapaksa, the elder brother of the President, to resign on May 9.

An inflation rate spiralling towards 40 percent, shortages of food, fuel and medicines and rolling power blackouts have led to nationwide protests and a plunging currency, with the government short of the foreign currency reserves it needed to pay for imports.