News
Yes and no to joining the poorest club for loans
View(s):In the first week of October, President Wickremesinghe had told Parliament that International Development Association loans had been sought, “because we cannot get IBRD (International Bank for Reconstruction and Development)’’.
Then, the Cabinet on October 10, announced approval to seek World Bank designation as a, “lower income country”, from “lower middle income country”. However, later in the day, President Wickremesinghe said in a statement, the status quo will be maintained.
Umesh Moramudali, an economist, said that the Government cannot change the status given by the World Bank as “lower middle income country”, but can request a change.
“It is clearly a miscommunication by the Cabinet,” Mr. Moramudali told the Sunday Times as the Cabinet spokesman, Mr Bandula Gunawardana became confused with the statement he had made regarding reverse graduation.
The Government has submitted a request to the World Bank.
Sri Lanka, given its current GNI of US$3,820 is still classified as a lower middle income country with 53 other countries including India, Indonesia and Pakistan.
The Government has made the request based on ‘lack creditworthiness’ for borrowing on market terms and the need for concessional financing. The World Bank has received the request, which is currently under review.
The IBRD provides loans considering the credit worthiness of a country, but Sri Lanka lost its credit worthiness because Fitch Ratings downgraded the long-term foreign-currency issuer default rating to ‘RD’ (restricted default) from ‘C’ in May 2022.
How IDA projects are implemented
- The borrower government implements the project with technical assistance and support from the World Bank. Adequate safeguard polices, and fiduciary controls are put in place. Once underway, the implementing agency reports regularly on project activities and prepares status reports.
- The project’s progress, outcomes, and impact on beneficiaries are monitored throughout the implementation phase to obtain data to measure the operation’s ultimate effectiveness.
- The final outcomes are then compared to expected results. The information gathered is often used to find out what additional government measures and capacity improvements are needed to sustain the benefits derived from the project. — Source: IDA
The World Bank categorises countries into various income groups depending on per capita gross national income. (please see table below)
Chayu Damsinghe, a macroeconomic and thematic researcher at Frontier Research said that Sri Lanka is far from being demoted to a lower income country based on the GNI per capita at present. To be demoted to a low-income country status, Sri Lanka’s Per capita GNI should drop to US$1,085, which is impossible in the near future.
If Sri Lanka were to be demoted, unemployment will skyrocket and people could starve, he said.
| World Bank Group lender, a potential source for grants The lender to the poorest countries, the International Development Association, a part of the World Bank Group, hands out credit and grants on concessional terms on 30 to 40 year repayment terms. Much of the IDA lending to the world’s 74 poorest countries is given as grants. Sri Lanka graduated from the IDA in the financial year 2017. Relative poverty, defined as gross national income per capita, is an established threshold and updated annually (US$1,255 in the fiscal year 2023). It determines eligibility for support from the IDA. The IDA also complements the International Bank for Reconstruction and Development. | |
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