Sri Lanka to seek World

Bank support alongside

IMF loan programme -
sources
Uditha Jayasinghe and Devjyot Ghoshal
Thu, March 24, 2022, 3:36 PM

COLOMBO/NEW DELHI (Reuters) - Sri Lanka will seek World

Bank assistance to stave off a severe economic crisis in
addition to an International Monetary Fund (IMF) rescue plan to
be discussed next month, two sources said.
A 70% drop in foreign exchange reserves since January 2020
has left Sri Lanka struggling to pay for essential imports,
including food and fuel, leading to growing unrest and even
military deployments at gasoline stations.
Holding paltry reserves of $2.31 billion as of February, the
country must repay about $4 billion in debt over the rest of this
year, including a $1 billion international sovereign bond that
matures in July.
To seek a way out of the crisis, Finance Minister Basil
Rajapaksa will fly to Washington DC next month to hold talks
with the IMF and also officials from the World Bank, two
sources with direct knowledge of the plans told Reuters.
"What we need is budgetary support," one of the sources said,
referring to the financial assistance that the Sri Lankan
government will ask the World Bank for.
The source was unable to provide the size of World Bank
assistance that Sri Lanka could seek.
The World Bank typically extends support to boost exports,
improve economic competitiveness and aid growth, analysts
said.
In heavily indebted Argentina, for example, the World Bank is
working on approving a $2 billion loan package for 2022 that
includes support for infrastructure, health, social inclusion and
environment projects.
Both sources, who declined to be named, since discussions
were confidential, said such assistance would likely come after
Sri Lanka entered into an IMF-supported loan programme.
In response to questions from Reuters, the World Bank said it
was not currently in talks with Sri Lanka to provide budget
support.
"We are engaging with the authorities to identify a
comprehensive structural reform program needed to ensure
sustainable growth, and around which such support may be
possible in the future," the World Bank said.
Sri Lanka's Finance Ministry did not respond to a request for
comment.
'DAMN TOUGH'
The amount of funding would depend on the specific goals set
by an IMF programme as well as Sri Lanka's trade and fiscal
deficits, analysts said, estimating an annual requirement of up
to $3 billion from several multilateral and bilateral sources.
"If they have a credible IMF programme then there will be a
period, perhaps six months to a year, maybe two, when it will be
damn tough," the second source said.
"So how will people survive? That is where institutions like the
World Bank will come in with budget support."
An IMF programme will likely focus on external debt
restructuring, greater exchange-rate flexibility and better
targeted subsidies, which may hit the poor, analysts said.
Transparent energy pricing is also likely to drive up fuel and
electricity costs.
The World Bank could promote direct subsidy transfer, push
green energy and develop human capital through improvements
in health, education, and social protection, the second source
said.