World Bank Group adopts new Country Partnership Framework for Sri Lanka
Friday, 30 June 2023 00:26 – – 59
Initiative from 2024-2027to help Sri Lanka reset its economy, protect the poor
Sri Lanka’s poverty rate doubled from 13.1% to 25% between 2021 and 2022, an addition of 2.5 million poor people and is projected to increase by another 2.4% percentage points in 2023
Approves $700 m in financing for two operations – $ 500 m for Sri Lanka Resilience, Stability and Economic Turnaround (RESET) Development Policy Operation and $ 200 m Social Protection Project
World Bank President
World Bank Country Director for Sri Lanka Faris H. Hadad-Zervos
IFC South Asia Acting Regional Director Shalabh Tandon
The World Bank Group’s Board of Executive Directors on Wednesday discussed the new Country Partnership Framework for Sri Lanka, which aims to help restore economic and financial sector stability and build a strong foundation for a green, resilient, and inclusive recovery.
This CPF comes at a time when the country is navigating a severe economic crisis that is having devastating impacts on people’s lives and livelihoods and which demands deep reforms to stabilise the economy and protect the poor and vulnerable. Sri Lanka’s poverty rate is estimated to have doubled from 13.1 to 25% between 2021 and 2022—an addition of 2.5 million poor people—and is projected to increase by another 2.4% percentage points in 2023.
“The extent of the crisis in Sri Lanka is unprecedented, but offers a historic opportunity for deep reforms to reset the country’s economic storyline,” said World Bank Country Director for Sri Lanka Faris H. Hadad-Zervos. “The CPF supports this shift. Through a phased approach, the World Bank Group strategy focuses on early economic stabilisation, structural reforms, and protection of the poor and vulnerable. If sustained, these reforms can put the country back on the path towards a green, resilient and inclusive development.”
The CPF, which covers the years 2024-2027, lays out a two-phased approach that starts with a focus on urgent macro-fiscal and structural reforms and supports to protect the human capital and most vulnerable population. After the first 18-24 months, and subject to a successful implementation of the reform program and international debt relief and financial support, the CPF focus will gradually shift to investments in longer-term development needs that will help promote private sector job creation—particularly for women and youth—and boost resilience to climate and external shocks.
“A strong and engaged private sector is crucial for Sri Lanka, especially in overcoming the economic crisis. Sri Lankans urgently need jobs and livelihood opportunities to rebuild lives affected by the crisis,” said IFC South Asia Acting Regional Director Shalabh Tandon. “Promoting private sector-led growth is therefore critical in revitalizing the economy. IFC’s focus for Sri Lanka will be on supporting export-oriented sectors, promoting climate financing, and enabling digitization – all of which will foster inclusive, resilient, and sustainable growth.”
To prepare the CPF, the World Bank Group held extensive countrywide and online consultations with key stakeholder groups, including the government, the private sector, civil society, think tanks, academia, media, and other development partners.
The World Bank Board of Directors also approved $700 million in financing for two operations to help Sri Lanka implement foundational reforms that restore macroeconomic stability and sustainability, mitigate the impact of current and future shocks on the poor and vulnerable, and support an inclusive and private-sector-led recovery and growth path.
The Sri Lanka Resilience, Stability and Economic Turnaround (RESET) Development Policy Operation ($500 million) will support reforms that help improve economic governance, enhance growth and competitiveness, and protect the poor and vulnerable. It will provide budget support in two equal tranches against agreed prior actions.
The Social Protection Project ($200 million) seeks to support Sri Lanka in providing better-targeted income and livelihood opportunities to the poor and vulnerable and improving the responsiveness of the social protection system.
The active World Bank portfolio as of June 26 is composed of IBRD financing worth $1.09 billion and IDA financing worth $1.17 billion. Sri Lanka lost IBRD creditworthiness and cannot access additional IBRD financing. Upon the Government’s request, a reverse graduation to regain access to IDA concessional financing was approved. Until IBRD creditworthiness is re-established, Sri Lanka will have access only to IDA resources.
The CPF will leverage the close cooperation across the World Bank, IFC, and MIGA and with development partners.
As the largest global development institution focused on the private sector in developing countries, IFC has invested close to $1 billion in Sri Lanka since the onset of the COVID-19 pandemic, helping businesses and sustaining jobs. Recently, IFC provided a cross-currency swap facility to three of the country’s leading national banks that deal with over 30% of Sri Lanka’s remittances and exports. The facility intends to support the private sector with critical financing, contributing to the country’s urgent need to stabilise the economy. IFC will continue its efforts to promote private sector-led growth by supporting innovation, product diversification, growth-enabling sustainable infrastructure and in deepening social and financial inclusion.
MIGA will continue to explore opportunities to support cross-border investment and lending. MIGA does not currently have any projects in Sri Lanka but will continue to work together with the World Bank and IFC to promote FDI. Sri Lanka is included in the list of target countries where MIGA can implement its Trade Finance Guarantees Program (in collaboration with IFC). MIGA will also look for opportunities to apply its Gender Strategy Implementation Plan in the projects it supports.