The World Bank approved a $500 million concessional loan to bolster Sri Lanka’s economic stabilization efforts, part of a broader $1.5 billion commitment over three years to support reforms and debt restructuring.
While reports of a $1 billion loan in 2025 are unconfirmed, the October funding addresses Sri Lanka’s ongoing financial crisis, marked by a 2022 default on $46 billion in external debt. The loan, disbursed through the International Development Association (IDA), aims to strengthen fiscal policies, enhance banking sector resilience, and support small businesses.
Sri Lanka’s economy contracted by 7.8% in 2022, with inflation peaking at 70%, triggering shortages of fuel, food, and medicine. The $500 million loan supports the government’s reform agenda, including tax system improvements and state-owned enterprise restructuring, following a $2.9 billion IMF bailout in 2023. The World Bank’s funding targets 1.5 million micro, small, and medium enterprises, which employ 27% of the workforce, and aims to restore banking sector capital adequacy after losses from domestic debt restructuring.
The loan comes amid Sri Lanka’s efforts to finalize debt agreements with creditors, including $12.5 billion with bondholders and $5 billion with China. President Anura Kumara Dissanayake, elected in September 2024, has prioritized economic recovery while maintaining IMF commitments, though his push to renegotiate terms has raised concerns. The World Bank projects 4.4% growth for Sri Lanka in 2025, but challenges like high poverty (23% in 2024) and unemployment persist. The funding underscores international support for Sri Lanka’s recovery, with further disbursements expected to drive sustainable growth.