In response to the economic challenges faced by Sri Lanka since the sovereign debt and economic crises that began in April 2022, the Asian Development Bank (ADB) has greenlit a $200 million concessional loan to support the Government of Sri Lanka. The funding is aimed at stabilizing the country’s finance sector, which had suffered setbacks due to the suspension of external debt payments.
Termed the Financial Sector Stability and Reforms Program, the initiative comprises two subprograms, each allocated $200 million. Subprogram 1, executed in 2023, focuses on implementing short-term stabilization and crisis management measures. Subprogram 2, scheduled for 2024, aims to undertake structural reforms and long-term actions to rejuvenate growth in the banking sector.
The program’s key objectives encompass strengthening the stability and governance of Sri Lanka’s banking sector, enhancing asset quality, and fostering sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises. Despite tentative signs of stabilization in Sri Lanka’s economy, a full recovery remains uncertain, according to the latest review by the International Monetary Fund (IMF).
ADB Country Director for Sri Lanka, Takafumi Kadono, emphasized that the program aligns with the country’s strategy of maintaining finance sector stability and positioning banks for eventual recovery. The overarching development objective is to establish a stable financial system that provides access to affordable finance for businesses across various sectors of the economy.
This program builds upon ADB’s earlier crisis response through a special policy-based loan approved in May 2023. It aligns with the fourth pillar of the IMF’s Extended Fund Facility for Sri Lanka, contributing to the country’s efforts to regain financial stability. Additionally, it supports the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and designating it as the country’s macroprudential authority.
ADB collaborated closely with the IMF to design targeted regulatory reforms, including the asset quality review, and partnered with the World Bank to reinforce the deposit insurance scheme in the banking sector.
The loan is complemented by a $1 million grant from ADB’s Technical Assistance Special Fund, earmarked for providing advisory services, knowledge transfer, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.
With a commitment to fostering a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, ADB, established in 1966 and owned by 68 members, including 49 from the region, aims to continue its efforts to eradicate extreme poverty.
