Sri Lanka is struggling to deal with the effects of the country’s prolonged civil war. The ongoing conflict has come to an abrupt halt in the summer of 2009, but the impact of it continues to be felt. The one-party state has been damaged, the economy is struggling and the government is trying to cope with the aftermath. The World Bank is ready to provide emergency support to the Sri Lankan government, as President Maithripala Sirisena makes an appeal for help.
Sri Lanka is a small South Asian country situated in the Indian Ocean. It is also known as the ‘sick man of the Indian Ocean’, as it is home to the world’s largest coral reef and is one of the most biodiverse countries in the world. The civil war has been on since 1983 and the country has been wracked by violence up to recently. The Asian Development Bank, the country’s primary development lender, is working towards stabilising the country and ending its conflict.
Nevertheless, the ongoing violence and lack of basic services in parts of the country have left a dent in the country’s reputation. The World Bank is aware of these challenges and is ready to provide emergency support to Sri Lanka. This support will be in the form of financial assistance, but it does not mean that the bank is lending money or extending credit. It is only helping the Sri Lankan government to address its commitments to rebuild, provide basic services
What does a World Bank Emergency Loan mean?
The World Bank Emergency Loan, or E-Loan as it is commonly known, is a low-interest loan provided by the bank to developing countries in need of urgent assistance. The loan, which has a term of up to 12 months, can be used for projects or Programs that will, altogether, cost up to $38 million. The loan can be used for capital expenditures, such as the purchase of equipment and construction projects, or for financing operations, such as interest coverage for the bank’s lending partners.
The selection of projects for the loan is made on the basis of a Country Assessment, which takes into account socio-economic development, infrastructure needs and the general level of debt/GDP of the country.
Projects selected must have a good chance of success and achieve the objectives of the loan.
How Sri Lanka can access its Emergency Loan
The World Bank Emergency Loan is directly available to the government of Sri Lanka. The government can apply to the World Bank for the loan and it can be disbursed according to the terms and conditions of the agreement. The loan can only be used for projects approved by the government and it cannot be used for current or past government projects.
The loan can be used for capital expenditures, such as the purchase of equipment and construction projects, or for financing operations, such as interest coverage for the bank’s lending partners.
The Sri Lankan government’s commitment to rebuild
After the Tamils declared a ceasefire in mid-2009, the return of the population to their homes was quick and complete. The conflict-affected areas in northern and central parts of the country have been re-opened for habitation and the government is working towards providing a clear-cut division of administrative and governance between the warring parties. The process of returning areas to pre-war population levels has been slow, but the government is committed to complete the process.
The government is also working towards increasing the standard of living of the country’s population through economic development and improvements in social services. The government has two main focuses for its development policy:
To double the country’s per capita income to $2,500 by 2020
To raise the literacy rate from the current 65% to 80%
The World Bank’s role in the recovery process
As part of its support for the government, the Bank will make available technical assistance, as well as financial resources, to support the government’s efforts to improve the financial health of the central government and the state-owned enterprises. The technical assistance includes advice on financial management, budgeting, accounting and financial reporting, as well as on the ownership and operation of state-owned enterprises.
The financial resources include loans and lines of credit, as well as technical assistance, to assist the central government in meeting its fiscal requirements.
What will be the terms and conditions of the Emergency Loan?
The loan will be provided under the concessional credit extension program of the World Bank. The program provides financing to developing countries which have implemented sound macroeconomic policies and are in a position to repay their loans.
The government of Sri Lanka has committed to maintaining full employment and a minimum standard of living for its population through economic development.
The government has also committed to maintaining sound fiscal policies, such as a minimum level of taxation and reductions in government spending.
To be eligible for the loan, the government will have to submit an agreement with the World Bank that includes the following commitments:
– The government will ensure that the areas returned to normalcy by 2004 (the year of the ceasefire) are fully self-governed and demilitarised.
– The government will implement an employment policy that ensures a minimum standard of living for the country’s population, improves the lot of the poor and increases the number of job opportunities.
– The government will reduce its national debt/GDP to 40% of GDP by 2020.
With the longest-running civil war in human history still raging, the World Bank has stepped in to provide emergency support to Sri Lanka. The Bank will provide a low-interest loan of $2.5 billion to help the government’s efforts to rebuild following the conflict. The loan will be provided under the concessional credit extension program of the Bank and will have low collateral requirements. The government of Sri Lanka has committed to maintaining full employment and a minimum standard of living for its population through economic development.