The Sri Lanka government has announced that they have got an assurance of $600 million in financial aid from the World Bank to help navigate the current foreign currency deficit crisis. Over the last two months, the island nation has been suffering from a shortage of essential items like food, fuel, and medicines due to the inability to import those commodities in light of the dollar crunch.
Out of the promised $600 million promised by Word Bank, $400 million will be released shortly, said a media statement by the Sri Lanka president’s office. This development has proved to be a breather for the markets. The Colombo All-Share Index appreciated by 4.1% on the back of the aid, news reports said.
The country was forced to default on some of its foreign debt commitments on account of paucity of foreign currency reserves recently. This has been touted as the worst financial crisis for the nation since its Independence in 1948.
The crisis has unfolded as a result of a combination of factors. Sri Lanka which is highly dependent on international tourism for 10% of its GDP had suffered due to the pandemic over the last two years. In addition, an unsuccessful hard pivot towards organic farming, natural calamities, and a low tax regime contributed to the draining of the government coffers.
Other than international financing organizations like the World Bank and International Monetary Fund, Sri Lanka is taking from countries like neighbours India and China.
So far, India has provided $1.9 billion with another $1.5 billion expected as part of an extended credit line. The Sri Lankan government is also in talks with China for a $1 billion loan.