ADB's Work in Sri Lanka

ADB has been a major development partner to Sri Lanka since 1966 and is today the country’s largest source of multilateral development assistance. Sri Lanka has witnessed steady growth over the past decade, although economic expansion has slowed in the past few years, indicating important macroeconomic challenges ahead. In 2019, the country’s growth remained subdued, reflecting the impact of the Easter Sunday terror attacks on tourism and general disruption in the economy.

Sri Lanka has entered a new development phase, reaching upper middle-income status at the end of 2018. The country’s new government since November 2019 is focused on reinforcing national security, eradicating corruption, and achieving higher and more sustainable economic growth.

The Udatenna to Mahiyanganaya road is an ADB supported project that has vastly eased transport on one of the most difficult to maneuver roads in Mahiyanganaya, Sri Lanka.

Since 1966, ADB has committed loans, grants, and technical assistance totaling $10.5 billion for Sri Lanka. Cumulative loan and grant disbursements to Sri Lanka amount to $7.21 billion. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds.

On 1 January 2019, Sri Lanka graduated from ADB’s concessional assistance and is eligible to borrow only from the bank’s regular ordinary capital resources.

The switch-yard, of Mahiyanganaya Grid Substation at Dambarawa-Mahiyanganaya

ADB committed a $10 million loan for the Urban Project Preparatory Facility, which supports Sri Lanka’s project readiness to meet ADB’s financing requirements and build the capacities of implementing agencies in the urban sector prior to project approval.

ADB assistance in Sri Lanka’s energy sector continues to focus on increasing renewable energy development (including wind and solar power generation), improving energy efficiency, expanding the transmission and distribution system, broadening energy access for lagging regions, and improving reliability and quality of power supply.

In February 2019, ADB committed $145 million for the Science and Technology Human Resource Development Project to support the Government of Sri Lanka’s efforts to foster science and technology studies in the country’s higher education system. The project will deliver priority degree programs, provide innovative and industry-relevant education and research facilities, and aid in quality curriculum design.

The laboratory of the Hakmana Methodist Central College

ADB’s ongoing health sector project aims to improve primary health-care services in Central, North Central, Sabaragamuwa, and Uva provinces. The project is strengthening health information systems and disease surveillance capacity, while addressing gaps in public health services in line with international regulations.

In 2019, ADB committed a $50 million loan to the Regional Development Bank of Sri Lanka. This investment expands ADB’s support for providing affordable and accessible credit to MSMEs located outside Colombo district, with an emphasis on gender empowerment. The project’s innovative design meant the loan was structured to provide regulatory capital that would leverage additional lending to meet higher Basel III requirements for the banking sector, which came into effect on 1 January 2019.

ADB’s nonlending program in Sri Lanka supports project preparation and implementation, knowledge work, and capacity development of relevant agencies. In response to the Easter Sunday terror attacks, ADB committed a $500,000 technical assistance grant in December 2019 to support the government’s efforts to build a more resilient and competitive tourism sector.

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments from ADB’s own funds (in equity and direct loans) in 2019 amounted to $3.00 billion for 38 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2019, ADB mobilized $3.28 billion of long-term cofinancing and $3.69 billion of cofinancing in trade finance, microfinance, and supply chain finance programs. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $13.78 billion as of 31 December 2019.

ADB’s Women Entrepreneurs Finance Initiative (We-Fi) has been instrumental in creating a lasting impact on women-led Small and Medium Entrepreneurs in Sri Lanka.

Financing Partnerships

Financing partnerships enable ADB’s development partners, governments or their agencies, multilateral financing institutions, and commercial organizations to participate in financing ADB projects. The additional funds are provided in the form of loans and grants, technical assistance, and other nonsovereign cofinancing such as B loans, risk transfer arrangements, parallel loans and equity, guarantee cofinancing, and cofinancing for transactions under ADB’s Trade Finance Program and Supply Chain Finance Program.

ADB began cofinancing operations in Sri Lanka in 1972. Since then, sovereign cofinancing commitments for Sri Lanka have amounted to $1.42 billion for 41 investment projects and $27.56 million for 41 technical assistance projects. Nonsovereign cofinancing for Sri Lanka has amounted to $3.03 billion for four investment projects.

In 2019, Sri Lanka received $30 million in loan cofinancing from Agence Française de Développement for the Green Power Development and Energy Efficiency Improvement Investment Program–Tranche 2 and $342.73 million in loan cofinancing from the Japan International Cooperation Agency for the South Asia Subregional Economic Cooperation Port Access Elevated Highway Project.

Operational Challenges

In 2019, operations in Sri Lanka were affected by the Easter Sunday terror attacks and associated economic disruption as well as continued fiscal tightening, which led to insufficient budgetary allocations.

Other operational challenges continue to hinder project implementation in Sri Lanka. These include lengthy land acquisition procedures, procurement delays caused by cumbersome approval processes, limited availability of counterpart funding, and poor contractor performance. Regular portfolio review meetings—involving ADB, the government, and executing agencies—help resolve project implementation issues and foster information sharing. Regular review missions are also conducted by ADB staff to provide support for implementation on the ground.

Through technical assistance, ADB is helping improve project readiness and portfolio management and build institutional capacity in Sri Lanka, particularly in new implementing and executing agencies.

Future Directions

ADB will continue to maintain a strong pipeline of projects, committing an average of $800 million annually in sovereign loans to Sri Lanka under the country partnership strategy, 2018–2022. The bank’s operations will focus on strengthening drivers of growth by diversifying Sri Lanka’s economy, enhancing productivity, and improving the quality of growth by promoting inclusiveness.