Economic crisis: the government considering a downgrade

The Government is currently discussing downgrading Sri Lanka’s categorization within the World Bank’s ‘country and lending groups’ The World Bank proposed a downgrade to obtain access to additional financing, 

Sri Lanka’s downgrade in the World Bank’s lending category will allow the government to receive more grants and low-interest loans.

Sri Lanka is an IBRD country.

State Minister of Finance Ranjith Siyambalapitiya told media that the World Bank has proposed a downgrading and that the government was discussing it.

“The World Bank asked if we’d agree to this,” he stated.

Siyambalapitiya said the government believed a downgrade was needed to address the economic crisis because it would provide grants and money at concessionary rates.

“We’re an IBRD country and may need to downsize.” The State Minister said this may be necessary to address the current predicament.

With the demotion, Sri Lanka will be a low-income country.

The government depends on finalising a deal with the IMF by December to solve economic concerns.

Peter Breuer and Masahiro Nozaki, IMF Mission Chiefs for Sri Lanka, said last week that a deadline couldn’t be set for the deal’s completion. The Sri Lankan government must gather funding for basics by the end of the year.

A senior government source told The Sunday Morning that opening access to funds is the government’s top goal.

While the country needs handouts and cheap borrowing rates, a prominent economist told The Sunday Morning that a downgrade would hurt the entire economy.

The economist said more time was needed to fully assess the impact.

Sri Lanka transitioned from the World Bank Group’s soft lending arm, IDA, to IBRD in 2017, expanding World Bank commitments to the country.

The IBRD lends to middle-income and creditworthy low-income nations, while the IDA gives interest-free loans to needy countries.

Blend is a classification for non-IDA/IBRD countries. Blend countries are IDA-eligible and IBRD-creditworthy.

IDA Small Economy, IDA Regular, Blend, and IBRD are the World Bank’s current borrowing classifications. Sri Lanka’s creditworthiness won’t let it to be categorised as a Blend country because to its debt restructuring. Sri Lanka must become an IDA small economy.

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