Sri Lanka and World Bank Sign $200M Agreement to Bolster Economic Recovery and Resilience

The reforms are designed to create a stable macroeconomic environment, restore investor confidence, and safeguard living standards for the poor and vulnerable.

The World Bank and the Government of Sri Lanka have signed the Second Resilience, Stability, and Economic Turnaround (RESET) Development Policy Operation (DPO), securing $200 million in funding to support critical economic reforms. This marks the second part of a series that began in 2022, following the disbursement of $500 million in the first RESET DPO, which was released in two phases in June and December 2023.

The Second RESET DPO aims to strengthen Sri Lanka’s economic governance, enhance its competitiveness, and provide support for the country’s most vulnerable populations, fostering a more resilient and inclusive economy. The reforms are designed to create a stable macroeconomic environment, restore investor confidence, and safeguard living standards for the poor and vulnerable.

Key areas of focus for the Second RESET DPO include:

Economic Governance:

Public Debt Management: Introduction of a new Public Debt Management Act to improve borrowing decisions and ensure transparency.

Tax Reforms: Strengthening tax administration to increase revenue and enhance fiscal stability.

Financial Sector Stability: Addressing risks in the financial sector by tightening single borrower limits and improving mechanisms for resolving non-performing loans.

Private Sector Development and Growth:

Telecommunications and Electricity Sector Reforms: Amendments to the Telecommunications Act and a new Electricity Act to improve services and promote market efficiency.

Trade Competitiveness: Phasing out para-tariffs and reducing customs duties to enhance export competitiveness and encourage private sector growth.

Protection of the Poor and Vulnerable:

Revamping the social protection system to help vulnerable populations cope with the lingering effects of the economic crisis.

Initiatives to empower women and reduce gender discrimination, supporting sustainable growth and promoting equitable economic opportunities for all Sri Lankans.

David Sislen, World Bank Regional Country Director for Maldives, Nepal, and Sri Lanka, highlighted the importance of these reforms, stating, "This operation represents support for critical reforms over the past two years, which were central to economic stabilization. Moving forward, Sri Lanka now has the opportunity to focus on maintaining its hard-earned stability and investing in the private sector to transform the national growth trajectory."

The RESET DPO series has been instrumental in driving foundational reforms. The first operation facilitated the launch of a new social welfare benefit payment scheme, simplified the country’s tariff structure to boost exports, and strengthened the banking sector by improving deposit insurance and bank resolution frameworks.

The World Bank remains committed to assisting Sri Lanka in overcoming its economic challenges and fostering long-term, sustainable growth through ongoing reforms and targeted investments.