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  • Loan of US$ 150mn to bolster CB’s insurance scheme that protects depositors
  • US$ 4mn to be invested to improve transparency in public expenditure through e-procurement

Among a pipeline of projects for Sri Lanka that the World Bank (WB) will shortly seek board approval for is a loan of US$ 150mn to bolster the Central Bank’s deposit insurance scheme which protects bank depositors from losses caused by a financial institution’s inability to pay its debts when due, official documents show.

Also on the cards is the support of US$ 7.6mn to strengthen public sector institutions and increase transparency in procurement and external audit.

The WB is drawing up its country partnership framework (CPF) for Sri Lanka for the next three years. Under this, it will decide what sectors to support and the disbursements that will be made.  While previous CPFs had a significant infrastructure-development focus, the latest cycle will concentrate on improving economic resilience and access to jobs while protecting and enhancing people and natural resources, the documents show.

The proposed ‘financial sector safety net strengthening project” is especially relevant in view of the domestic debt restructuring that is on the cards and is expected to boost public confidence in the banking system. It will also strengthen financial institutions and act as a “safety net”, allowing the regulator to meet its deposit insurance obligations, the WB documents state.

They also show that the “financial soundness indicators” of banks point to “growing stability risks”. Many more loans are going unpaid while high deposit rates drove up banks’ cost of funding and domestic banks, particularly the State-owned ones, were relying heavily on the Central Bank to fulfil their funding needs.

The WB states that the Sri Lanka Deposit Insurance Scheme (SLDIS) is one of the weakest pillars of the financial sector safety net. It has been collecting premiums from member institutions since 2010 and conducted several payouts for failed licensed finance companies in recent times. But it needs to be strengthened and procedures “urgently enhanced”.

One of the components of the project is a quick build-up of SLDIS reserves to enable it to deal with “potential bank and LFC failures, as necessary”.

Separately, under the ‘public financial management strengthening project’, the WB will invest US$ 4mn out of US$ 7.6mn to improve efficiency and transparency in public expenditure through e-procurement, official documents show. Technical assistance will be provided to the Finance Ministry’s Public Finance Department, under which an e-Government Procurement Secretariat has already been created.

A further US$ 3.5mn will go towards transforming the National Audit Office (NAO) into a modern “supreme audit institution”. The WB will provide technical assistance to support the NAO in, among other things, enhancing its capacity for specialised auditing of procurement and environment as well as of State-owned enterprises. It will help the NAO to develop and pilot a test framework for participatory auditing–which involves the general public in the audit process.


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