ADB's Work in Sri Lanka

The Asian Development Bank (ADB) has been a major development partner to Sri Lanka since 1966 and is today the country’s largest source of multilateral development assistance

The coronavirus disease (COVID-19) pandemic and associated restrictions in Sri Lanka impacted most major sectors of the country’s economy. This comes in the wake of the Easter Sunday terror attacks in 2019, which also had significant effects on economic growth, especially on tourism. The path to recovery will be challenging, given uncertainties in the global economic outlook and the fiscal constraints that Sri Lanka faces.

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 $11.1 billion for Sri Lanka.

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

To support longer-term inclusive growth in Sri Lanka, ADB approved $165 million in November 2020 as a third phase of additional financing for the Small and Medium-Sized Enterprises Line of Credit Project. This was cofinanced by the Japan Fund for Poverty Reduction with a $1.25 million grant. The third tranche of additional financing will deepen the financial ecosystem for Sri Lanka’s small and medium-sized enterprises and promote women’s entrepreneurship. It will help expand financial inclusion by piloting an affordable credit facility for strategically important and historically underserved tea smallholders, providing an affordable working capital facility for small and medium-sized enterprises struggling due to COVID-19, and promoting cash-flow-based lending.

In support of reforms to upper secondary education under the government’s General Education Sector Development Plan 2020–2025, ADB approved a loan of $400 million for the Secondary Education Sector Improvement Program. The program aims to enhance the quality and relevance of upper secondary science, technology, mathematics, and commerce programs; strengthen the capacity of provincial governments and schools to implement education reforms; and improve sector management capacity. This investment builds on ADB’s long-term engagement in Sri Lanka’s education sector and tackles key challenges stemming from the COVID-19 pandemic.

ADB’s technical assistance program in 2020 included support for human capital development, improving project readiness and portfolio management, and supporting national development planning as the government considers policies for COVID-19 pandemic recovery.

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 in loans and equity investments from ADB’s own funds in 2020 amounted to $1.4 billion for 38 transactions in economic and social infrastructure, finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2020, ADB mobilized $1.9 billion of long-term project cofinancing and $3.3 billion of cofinancing through its Trade and Supply Chain Finance Program and Microfinance Program. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $14.3 billion as of 31 December 2020.

Total outstanding balances and commitments of ADB’s nonsovereign transactions in the country as of 31 December 2020 was $478.6 million, representing 3% of ADB’s total nonsovereign portfolio.

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 financing 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 and Supply Chain Finance Program and Microfinance Program.

ADB began cofinancing operations in Sri Lanka in 1972. Since then, sovereign cofinancing commitments for the country have amounted to $1.42 billion for 42 investment projects and $29.56 million for 42 technical assistance projects. Nonsovereign cofinancing has amounted to $3.85 billion for six investment projects.

In 2020, Sri Lanka received $1.25 million grant cofinancing from the Japan Fund for Poverty Reduction for the Small and Medium-Sized Enterprises Line of Credit Project – Third Additional Financing.

A summary of cofinanced projects is available at Sri Lanka: Cofinancing.

Operational Challenges

In 2020, travel restrictions brought on by the COVID-19 pandemic delayed ADB operations in Sri Lanka during the first half of the year.

Other operational challenges continue to hinder project implementation in the country. 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, and benefiting from constant follow-up with government counterparts—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. In 2020, such review missions were conducted in an online environment.

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

While assisting the country in its socioeconomic recovery from the COVID-19 pandemic, ADB will continue to support Sri Lanka’s sustainable and inclusive development in the long term. The bank’s financial investments and knowledge work will seek to strengthen the drivers of growth by promoting diversification of economic activities, supporting human capital development, driving productivity enhancements, and improving the quality of growth by fostering inclusiveness. In close consultation with the government, ADB has begun processing a new country partnership strategy to address Sri Lanka’s priorities as it emerges from the COVID-19 pandemic beyond 2022.