World Bank releases $250mn to boost Sri Lanka reforms as the island nation continues implementing fiscal and structural adjustments aimed at stabilising its economy after the unprecedented financial crisis and sovereign default.
World Bank releases $250mn to boost Sri Lanka reforms amid recovery push
The World Bank has released $250 million to support Sri Lanka’s ongoing economic reform programme, marking the second and final tranche of a broader $500 million financing package. The disbursement reflects international confidence in the government’s progress on fiscal consolidation and structural reforms following the country’s historic financial collapse.
Sri Lanka defaulted on its external debt of approximately $46 billion in April 2022 after exhausting foreign exchange reserves needed to finance essential imports such as food, fuel, and medicines. The crisis triggered widespread shortages, soaring inflation, and prolonged civil unrest that ultimately led to the removal of then-president Gotabaya Rajapaksa.
Since the political transition, the current administration has pursued a series of austerity-driven reforms designed to restore macroeconomic stability and rebuild foreign reserves. These measures, though socially and politically challenging, have been central to securing international financial assistance and regaining access to multilateral funding.
In announcing the latest release, the World Bank stated that the funds were approved “considering the continued satisfactory progress made by the government with the reform program.” The institution’s endorsement signals that Sri Lanka has met key policy benchmarks related to revenue mobilisation, expenditure rationalisation, and governance reforms.
Central to the reform agenda has been a sharp increase in taxation, including higher value-added tax rates and broader income tax coverage. The government has also reduced long-standing subsidies on fuel and electricity, shifting prices closer to cost-reflective levels. While these steps have contributed to a higher cost of living, they are viewed by international lenders as necessary to stabilise public finances.
In parallel, Sri Lanka has enacted new anti-corruption legislation aimed at strengthening transparency and accountability within the public sector. These governance measures form a critical pillar of the reform framework supported by both the World Bank and the International Monetary Fund, reflecting concerns that weak institutions exacerbated past economic imbalances.
The World Bank funding complements a $2.9 billion bailout programme agreed with the IMF, which is being implemented over four years. Last week, the IMF released the second tranche of $337 million under this arrangement after Sri Lanka successfully concluded a debt restructuring agreement with its largest bilateral creditor, China. The deal was seen as a key milestone in restoring debt sustainability.
Economic indicators have begun to show early signs of stabilisation. The Central Bank of Sri Lanka reported that the economy expanded by 1.6 percent in the quarter ending in September, marking the first period of growth since the onset of the foreign exchange crisis. This compares with a contraction of 11.5 percent recorded during the same quarter a year earlier.
Despite this quarterly improvement, the overall economic picture remains fragile. Data for the first nine months of the year show that the economy contracted by 4.9 percent, underlining the depth of the downturn and the long road to recovery. The IMF has projected full-year gross domestic product growth of negative 3.6 percent, reflecting the lingering impact of tight monetary and fiscal conditions.
Analysts note that while multilateral funding has eased immediate balance-of-payments pressures, sustained recovery will depend on consistent policy implementation and social stability. Managing the impact of austerity on households remains a critical challenge, particularly as higher energy costs and taxes continue to strain disposable incomes.
The release of funds underscores the international community’s conditional support for Sri Lanka’s reform trajectory. However, lenders have emphasised that continued access to external financing will depend on maintaining reform momentum, avoiding policy reversals, and strengthening institutional credibility.
As World Bank releases $250mn to boost Sri Lanka reforms, the focus now shifts to translating financial support into durable economic gains, restoring investor confidence, and ensuring that recovery efforts deliver long-term stability rather than short-term relief.