The Asian Development Bank (ADB) has approved a US $200 million concessional loan to Sri Lanka as part of the Financial Sector Stability and Reforms Programme. This loan aims to stabilize the country’s finance sector following the economic and debt crises that began in April 2022. The program consists of two subprograms, each with a budget of US $200 million. Subprogram I was implemented in 2023 to address short-term stabilization and crisis management measures, while Subprogram II is scheduled for 2024 and will focus on structural reforms and long-term actions to restore growth in the banking sector.
The Financial Sector Stability and Reforms Programme seeks to strengthen the stability and governance of Sri Lanka’s banking sector, improve asset quality, and promote sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises. The program is aligned with the fourth pillar of the International Monetary Fund’s Extended Fund Facility provided to Sri Lanka and supports the government’s reform agenda, including the enhancement of the Central Bank of Sri Lanka’s operational independence as the country’s macroprudential authority.
According to ADB Country Director for Sri Lanka, Takafumi Kadono, the objective of the program is to maintain finance sector stability and ensure that banks are well-positioned for a future recovery. He emphasized that the expected outcome is a stable financial system that provides affordable finance to businesses across various sectors of the economy.
The loan is a continuation of the ADB’s assistance to Sri Lanka, following the special policy-based loan approved in May 2023. In collaboration with the International Monetary Fund and the World Bank, the ADB has designed targeted regulatory reforms and strengthened the deposit insurance scheme for the banking sector.
To provide additional support, the ADB’s Technical Assistance Special Fund has granted US $1 million for advisory, knowledge, and institutional capacity building purposes, benefiting Sri Lanka’s Finance Ministry and the Central Bank of Sri Lanka.
While Sri Lanka’s economy is showing tentative signs of stabilization, a full economic recovery is not yet assured, as stated in the latest review by the International Monetary Fund. The concessional loan from the ADB is expected to contribute significantly to the country’s ongoing efforts to restore financial stability and stimulate economic growth.
Overall, the approval of the US $200 million concessional loan by the ADB represents a crucial step towards bolstering Sri Lanka’s finance sector and promoting long-term stability and growth in the banking industry.
