The World Bank provided a lifeline to three private banks in Sri Lanka suffering from bankruptcy on Monday, as it loaned them $ 400 million to finance the import of basic foodstuffs and medicines in light of the failure of a rescue package from the International Monetary Fund.
The World Bank’s International Finance Corporation will provide the loan to the three banks at a time when Sri Lanka is still mired in its economic crisis.
The South Asian country of 22 million people has been experiencing severe difficulties since it ran out of foreign currency to finance the import of basics such as food, fuel, medicine and fertilizers in late 2021. It defaulted on its debts in April 2022, according to AFP.
Months of protests forced the president to resign in July, and Ranil Wickremesinghe’s government sought a $2.9 billion rescue package from the International Monetary Fund a month later.
But the authorities say the package has not been released because China, Sri Lanka’s main bilateral creditor, has not provided financial guarantees.
The International Finance Corporation stated that the arrangement it reached regarding the loan with Ceylon Commercial Bank, Nations Trust Bank and Sampath Bank will support the private sector through basic financing that contributes to the country’s urgent need to stabilize the economy.
The rating agencies indicated that the entire Sri Lankan financial sector is under severe pressure after the default on the sovereign debt undermined confidence in all local banks.
A government ban on non-essential imports remains in place in an effort to save foreign exchange.
Wickremesinghe has doubled taxes and tripled fuel prices and utility tariffs in line with International Monetary Fund demands in order to boost government revenues before any bailout package. As a result, he faces widespread protests led by the trade unions.