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Sri Lanka to keep ‘middle-income’ status, seek concessional loans

The Island Nation Of 22 Million People Is Facing Its Worst Economic Crisis In More Than 70 Years.

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A worker cleans a hotel's window as the Sri Lankan flag waves in capital Colombo [File: Kim Kyung-Hoon/Reuters]

Sri Lanka will remain a middle-income country but request the World Bank to grant it some loans generally offered to poorer nations, the president’s office has said.

The island nation of 22 million people is facing its worst economic crisis in more than 70 years.

Earlier on Tuesday, a cabinet spokesperson said the government would seek to change its economic status to “low-income country” for easier funding.

President Ranil Wickremesinghe’s office, however, said the status change would not happen.

“Sri Lanka will remain a middle-income country,” the office said in a statement. “We will request the World Bank to grant the country eligibility to obtain loans offered by the International Development Association (IDA).”

The IDA is an arm of the World Bank that helps the world’s poorest countries with the aim of reducing poverty by providing zero to low-interest loans and grants.

The local World Bank office in Colombo had no immediate comment on the Sri Lankan request. It said it would continue its discussions with Sri Lanka and that the “key priority” was to move ahead with debt restructuring and economic reforms to put the country’s growth back on track.

The government valued Sri Lanka’s economy at $89bn last year. Even with an 8.7 percent contraction in gross domestic product (GDP) predicted for this year and accounting for currency depreciation, the economy will be about $75bn, with a per-capita income of about $3,400.

The World Bank defines low-income countries as those with a per-capita income of $1,085 or less in 2021.

Sri Lanka reached a preliminary agreement with the International Monetary Fund (IMF) for a $2.9bn bailout in September but has to put its debt on a sustainable path before the funds can be disbursed.

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The COVID-19 pandemic battered the tourism-reliant economy and slashed remittances from workers overseas. It also raised oil prices, triggered populist tax cuts and a seven-month ban on the importation of chemical fertilisers last year that devastated agriculture.

The island has also struggled with an acute dollar shortage to pay for imports of food, fuel and medicine, a plunge in the rupee and runaway inflation.