US approves USD 120 million new loan to support crisis-hit Sri Lankan economy

Colombo, Jun 15 (PTI) The US on Wednesday announced USD 120 million in new loans to Sri Lanka to grow and support small and medium-sized businesses in the debt-ridden island nation.

According to the US Embassy here, the US International Development Finance Corporation (DFC) Board of Directors has approved the loan in new investments that will reach small and medium-sized businesses and help to provide equity, jobs, and futures.

“For seventy years, the US has provided foreign assistance, loans, and trade opportunities to help grow the Sri Lankan economy and support the people,” US Ambassador to Sri Lanka Julie Chung said in a press release.

“Today’s announcement is good news for the private sector, as the DFC’s USD 120 million in new investments will reach small and medium-sized businesses and help to provide equity, jobs, and futures,” she said.

Welcoming the DFC loan, Prime Minister Ranil Wickremesinghe acknowledged that Micro Small and Medium Enterprises (MSME) have been hit hardest by the economic crisis.

"Appreciate the timely dispersal of USD 120 million loan by US International Development Finance Corporation @DFCgov to help small and medium businesses in Sri Lanka to overcome immediate challenges," Wickremesinghe tweeted.

Micro Small & Medium Enterprises (MSME) have been hit hardest by the economic crisis. Appreciate the timely dispersal of $120 million loan by US International Development Finance Corporation @DFCgov to help small & medium businesses in Sri Lanka to overcome immediate challenges.

— Ranil Wickremesinghe (@RW_UNP) June 15, 2022

The projects announced on Wednesday include a USD 100 million direct loan to the Commercial Bank of Ceylon, Sri Lanka’s leading commercial private bank, to expand lending to micro-small-and medium-sized enterprises (MSMEs) and address the credit gap for women-owned businesses, which represent 25 per cent of MSMEs in the country that is facing its worst economic crisis since its independence from Britain 1948.

The economic crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and other fuel, toilet paper, and even matches, with Sri Lankans being forced to wait in lines lasting hours outside stores to buy fuel and cooking gas.

The country is experiencing long queues for refuelling at pumping stations as the government finds it difficult to finance fuel imports to retain a reserve adequate for a minimum of three months.

A move to ration fuel is to be implemented from next month as the forex crisis gets worsened.

The nearly bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, announced in April that it is suspending nearly USD 7 billion foreign debt repayment due for this year out of about USD 25 billion due through 2026. Sri Lanka's total foreign debt stands at USD 51 billion.

The DFC also announced a USD 15 million loan to BPPL Holdings PLC, a polyester yarn manufacturer incorporating recycled plastic materials.

The loan will support increased production and strengthen Sri Lanka’s recycling infrastructure in support of efforts to reduce plastic waste in the island nation.

The DFC also announced a USD 5 million loan to the agriculture ministry's Tropical Food Processing (Private) Limited, a sustainable food company, to finance its expansion and grow its supplier network.

The DFC said this effort would strengthen fair trade practices in Sri Lanka and create new jobs, with an emphasis on increasing women’s employment.

These new loans are in addition to the DFC’s nearly USD 300 million in funding to Sri Lanka for the MSME sector over the past two years.

“The diverse set of transactions announced today will make a real impact across a range of sectors and development challenges,” said DFC CEO Scott Nathan.

“These transactions showcase how DFC strategically catalyses private capital where it matters most,” Nathan was quoted as saying.

These announcements may be subject to congressional notification in Washington and other administrative approvals. More information will be made available when funds are ready for disbursement.