A severe shortage of dollars tipped the island nation of 22 million people into its worst financial crisis since independence from Britain in 1948 last year, triggering its first foreign debt default in May 2022. Image Credit: Supplied

Sri Lanka will enter into an agreement with the World Bank for $500 million in budgetary support after the cabinet approved it on Tuesday, the biggest funding tranche for the crisis-hit nation since an International Monetary Fund deal in March.


The island nation of 22 million is emerging out of its worst economic crisis in seven decades and its economy is expected to shrink 2 per cent this year before returning to growth next year, following last year’s record contraction of 7.8 per cent.

Reuters reported last week that the World Bank is likely to approve $700 million in budgetary and welfare support for Sri Lanka at its board meeting on June 28, out of which $200 million will be for welfare programmes.

The government said on Tuesday that funding from the lender will come in two tranches.

Pledging to put its mammoth debt burden on a sustainable track Sri Lanka locked down a $2.9 billion bailout from the IMF in March. The domestic debt restructure is needed to help the country reach the IMF programme goal of reducing overall debt to 95 per cent of GDP by 2032.