ECONOMYNEXT – Sri Lanka had received 1,918 million US dollars in foreign finance in 2024, with the Asian Development Bank giving 862 million dollars, while Japan also started lending after defaulted debt was restructured, Finance Ministry data shows.
In 2024, 1,889 million dollars came as loans and 68.6 million dollars as grants.
The ADB in which Japan and the US are the major shareholders gave Sri Lanka 859.8 million dollars.
The World Bank which was founded with US leadership after World War II and now has support from Japan and China in addition to UK and Germany provided 564.9 million dollars of which 545.7 million dollars came as loans.
The IMF which was also founded amid US and British leadership and now has broad backing loaned 334 million US dollars.
Chinese backed AIIB loaned 51.9 million US dollars.
The OPEC Fund provided 20.3 and the IFAD loaned 16.4 million US dollars.
After Sri Lanka’s sovereign default in 2022, only multilaterals and India gave Sri Lanka significant amounts of money and Japan and China gave grants.
The USAID also gave grants through various mechanisms including the Food and Agricultural Organization. (Sri Lanka to get US$40mn from USAID for farming).
Sri Lanka had to keep up payments to multilaterals like the IMF, ADB, World Bank and AIIB, during the time it defaulted on bilateral loans, and commercial credit, while India continued to give loans despite the default.
Sri Lanka’s central bank then started making payments to the Reserve Bank of India, before other loans were formally restructured, using forex collected through deflationary policy.
In 2024, 49 percent of the total disbursement (939 million US dollars) was for budget support. Budget support loans, unlike project loans, do not have any tied domestic investments (and therefore imports) and can be used to repay maturing debt.
In 2023, 67 percent out of 1,721 million US dollars (about 1721 million dollars) were for budget support, which were available to repay foreign loan installments and interest.
Sri Lanka’s central bank is cutting rates, using statistical formulae advocated by the IMF among others, while private credit is recovering and budget support loans are slowing down.
There have been concerns raised that the latest rate cut in particular, which was not enforced with inflationary open market operations and will therefore not create forex shortages per se, has narrowed a comfort margin the country had in generating resources to repay debt analysts say.
Sri Lanka’s central government budgets deficits are improving but private credit is recovering and interest has to be paid on restructured loans and bonds, while budget support loans are reducing.
In 2019 in particular, when taxes were hiked and fuel was market priced Sri Lanka began to run balance of payments deficits and missed IMF reserve targets, mostly through signalling, critics have pointed out.
Sri Lanka has missed IMF reserve targets in 2012 in the first post-war IMF program and in 2018 and 2019 in the second as rate cuts rejecting classical economic principles (primarily Hume but also Smith and Ricardo) led to forex shorages and balance of payments deficits as private credit recovered.
(Colombo/July29/2025)
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