The World Bank has recently confirmed that, while no new financial assistance is immediately available for Sri Lanka, discussions with the new government have begun to explore future collaboration and support opportunities. This marks the start of a potential fresh chapter in Sri Lanka’s journey toward economic recovery after a period of crisis and instability.
Richard Walker, the World Bank’s Senior Country Economist for Sri Lanka and the Maldives, clarified that no budgetary or program-related assistance is currently in the pipeline. “At the moment, there is no new budget support or any other pending programs. However, it’s essential that we have a conversation with the new government to understand their vision and plans. Once we have a clearer picture, we can outline the types of support the World Bank may be able to provide—whether in the form of budgetary assistance or other operations. This discussion is only now beginning,” Walker said at the launch of the Sri Lanka Development Update report.
A Fresh Beginning for Sri Lanka’s Economy
These discussions are seen as a key step towards stabilizing Sri Lanka’s economy, which has been in recovery mode following a prolonged crisis. The new government, under President Anura Kumara Dissanayake, is expected to focus on strengthening international partnerships and seeking support from multilateral institutions like the World Bank to help guide the country through this challenging phase.
One of the recent milestones in the ongoing relationship between Sri Lanka and the World Bank is a $200 million loan agreement signed earlier this month. This agreement is part of the Second Resilience, Stability, and Economic Turnaround (RESET) Development Policy Operation (DPO), a two-part series that aims to support crucial reforms in the country. The first operation, worth $500 million, was completed in 2023.
The primary goal of the RESET DPO is to promote reforms that enhance economic governance, foster competitiveness and growth, and protect the most vulnerable groups in society. By strengthening economic resilience and creating a more equitable economy, the program aims to help Sri Lanka emerge stronger from its current challenges.
Key Areas of Focus for the World Bank
As talks between the World Bank and Sri Lanka’s government continue, the main focus will be on determining the type of support the country needs to push forward its economic agenda. One possible form of assistance could be budgetary support, which would help stabilize the government’s finances as it embarks on reform programs.
The World Bank has also emphasized the importance of policy consistency. Walker pointed out that although credit growth has been slow in the lead-up to the recent elections, there is optimism that it will pick up once the political situation stabilizes. “While election periods can create some uncertainty, business sentiment remains positive. We expect credit growth to accelerate after the elections, provided that the new government maintains consistent policies moving forward,” Walker explained.
Economic Outlook: Positive Signs and Challenges Ahead
The World Bank’s latest projections for Sri Lanka’s economy show signs of stabilization. The country’s economy is expected to grow by 4.4% in 2024, a significant improvement compared to earlier estimates. This growth is primarily driven by the industrial and tourism sectors, both of which have shown resilience in the face of challenges.
However, while the economic outlook is positive, there are still significant challenges ahead. Poverty levels are expected to remain above 20% until at least 2026, meaning that a large portion of the population will continue to struggle. Inflation, on the other hand, is projected to remain below the Central Bank’s target of 5% in 2024 before gradually rising as demand in the economy increases.
Despite these challenges, Sri Lanka’s current account is expected to remain in surplus throughout 2024, thanks to strong performance in tourism and remittances from overseas workers. These sectors will continue to play a vital role in supporting the economy during its recovery phase.
Looking ahead to 2025, the World Bank predicts a slightly lower growth rate of 3.5%. This more modest projection reflects the lingering effects of the economic crisis, which will likely continue to impact the country’s growth prospects in the short term.
Building Resilience for the Future
The World Bank’s ongoing support for Sri Lanka will be crucial as the country seeks to rebuild its economy and address the social and economic issues that have been exacerbated by the recent crisis. By focusing on reforms that promote economic resilience and protect the most vulnerable populations, Sri Lanka can lay the foundation for a more equitable and prosperous future.
As the discussions between the World Bank and the new government continue, the outcomes will determine the scope and nature of the support that Sri Lanka will receive. The government’s commitment to policy consistency, transparency, and reform will be essential in securing the international backing needed to drive the country’s recovery.
In the meantime, the World Bank remains optimistic about Sri Lanka’s potential for growth, particularly in sectors such as tourism and industry. By continuing to work closely with the new government, the World Bank aims to help Sri Lanka navigate its current challenges and emerge stronger in the years to come.
Conclusion
The ongoing discussions between the World Bank and the new Sri Lankan government signal the start of a new chapter in the country’s economic recovery. While no immediate financial support is pending, the conversations will shape the future of collaboration between the two parties. The World Bank’s focus on reforms, policy consistency, and protecting the vulnerable offers hope for a more stable and equitable future for Sri Lanka. As the country continues to recover from its economic crisis, international partnerships will play a crucial role in ensuring long-term growth and resilience.
