World Bank Preparing $500m Aid Package, Sri Lanka Says

The World Bank is preparing an emergency aid package of about $500 million for Sri Lanka, according to its Finance Minister Ali Sabry.

Sabry has been in Washington for talks with both the World Bank and the IMF to try to ease the country’s economic crisis.

The IMF said on Saturday that technical discussions with Sri Lanka on its loan request had been ‘fruitful’

The island nation of 22 million people is struggling to pay for imports amid a crushing debt crisis, which has caused a sharp drop in foreign exchange reserves that has fueled soaring inflation and forced the central bank to suspend payments on parts of its $51 billion in external debt.

Prolonged power cuts and shortages of fuel, food and medicines have sparked nationwide protests.

The World Bank’s emergency response package includes $10 million to be made immediately available for the purchase of essential medicines – funds shifted from its ongoing Covid-19 health preparedness project, a World Bank spokesperson said.

The global lender, which along with the IMF held its spring meetings this week, did not provide a total value for its package, but Sabry said about $500 million in aid was being considered.

The World Bank spokesperson said the package would leverage existing bank-financed projects and repurpose funds to quickly provide medicines, meals for school children and cash transfers for poor and vulnerable households.

Support to provide cooking gas, basic food supplies, seeds and fertilizers and other essentials is also under discussion, the spokesperson said, adding that the World Bank was “deeply concerned” about the situation in Sri Lanka.

IMF: Credible Strategy Needed

The IMF said in a statement on Saturday that talks between its staff focused on the need for Sri Lanka to implement “a credible and coherent strategy” to restore macroeconomic stability, and to strengthen its social safety net and protect the poor and vulnerable during the current crisis.

“The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors,” IMF Sri Lanka mission chief Masahiro Nozaki said in a statement after the country took steps to explore a restructuring of some $12 billion in sovereign bonds.

Sabry told reporters on Friday that the talks with the IMF were focused on a more traditional Extended Fund Facility programme, but that $3 billion to $4 billion in bridge financing was needed while this could be finalised.

The IMF has said that Sri Lanka’s debt needs to be put on a sustainable path before it could make new loans to Colombo – a process that could require lengthy negotiations with China and the country’s other creditors.

Sabry said on Friday that in addition to the IMF loan and World Bank assistance, Sri Lanka is discussing with India some $1.5 billion in bridge financing to help continue essential imports, and added that he has also approached China, Japan and the Asian Development Bank for help.

• Reuters with additional editing by Jim Pollard