The World Bank has ruled out bridge financing or new lending commitments to crisis-hit Sri Lanka until the island nation’s economy puts in place an adequate macroeconomic policy framework, the global lender said.
The World Bank’s statement came on Tuesday following reports that the Washington-based institution planned to help Sri Lanka weather the financial crisis in the form of a bridge loan or new loan commitments.
However, the Bank said it was reorganizing resources already allocated to provide essential drugs and other cash assistance to vulnerable people.
“Recent media reports have incorrectly stated that the World Bank is planning support to Sri Lanka in the form of a bridge loan or new loan commitments, among other incorrect assertions,” the Bank said in a statement. .
“We are concerned about the people of Sri Lanka and are working in coordination with the IMF and other development partners to advise on appropriate policies to restore economic stability and broad-based growth. an adequate macroeconomic policy framework is in place, the World Bank is not considering providing new financing to Sri Lanka,” he said.
He expressed hope that Sri Lanka will make continued efforts towards economic stability.
“We are now reallocating 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 from vulnerable families, and support for farmers and small businesses” , the statement said.
Sri Lanka is on the verge of bankruptcy and suffers from severe shortages of basic commodities ranging from food, fuel, medicine and cooking gas to toilet paper and matches. For months people were forced to line up to buy the limited supplies.
Sri Lanka has suspended repayment of about $7 billion in foreign loans due this year out of the $25 billion to be repaid by 2026. The country’s total external debt is $51 billion.
In the midst of its worst economic crisis, Sri Lanka has launched a negotiation program with the IMF.
The island, however, needs $4-5 billion in bridging funding to stop the crisis where shortages of essentials had led to street riots.
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 40 days. The crisis has already forced Prime Minister Mahinda Rajapaksa, the president’s older brother, to resign on May 9.
A 40% inflation rate, food, fuel and medicine shortages and power outages led to nationwide protests and a plummeting currency as the government ran out of foreign exchange reserves he needed to pay for imports.