-By Economic Correspondent
(Lanka-e-News -20.April.2025, 10.50 PM) In the post-default landscape of Sri Lanka’s fragile economy, the role of international financial institutions has come under heightened scrutiny. Among these, the Asian Development Bank (ADB) has positioned itself as a benevolent development partner, stepping in with millions in aid and policy-based loans. But beneath the polished narratives of sustainability, resilience, and financial inclusion lies a troubling pattern: secrecy, selectivity, and a growing disconnect from ground-level realities in Sri Lanka.
While ADB’s press releases are steeped in buzzwords like "governance reform," "resilience," and "financial stability," the practical implications of its assistance are shrouded in institutional opacity. The recent $200 million policy-based loan—part of the Financial Sector Stability and Reforms Program—is a case in point. Marketed as a vehicle to promote banking sector governance and financial inclusion, the loan, in reality, raises serious concerns about the accountability of multilateral financing and its alignment with Sri Lanka’s actual economic needs.
Unlike project-based loans, which are typically tied to specific, monitorable development goals—be it a road, school, or irrigation network—policy-based loans are deposited directly into the treasury or selected financial institutions. Theoretically, these are meant to incentivize reform. But in practice, they often disappear into bureaucratic black holes.
What is deeply concerning is the lack of public disclosure surrounding the conditions attached to such loans. The general public—whose livelihoods are most affected by the policies imposed as part of these deals—has no way of knowing the reforms being negotiated in their name. When a sovereign nation like Sri Lanka is dealing with debt distress and restructuring talks, this kind of policy opacity is not only undemocratic—it’s dangerous.
Sri Lanka’s financial institutions are already criticized for their poor governance, patronage networks, and regulatory capture. Channeling millions through such institutions without stringent public accountability mechanisms is akin to putting a fresh coat of paint on a collapsing wall.
ADB’s repeated invocation of “MSME support” has become a ritualistic chant, much like the IMF’s calls for “fiscal consolidation.” But one must ask: what are the real outcomes of this supposed support?
Despite ADB’s claim that its new $200 million loan will enhance financial access for women and micro-enterprises, evidence on the ground is hard to come by. Small and medium-sized businesses in Sri Lanka continue to cite lack of credit, high interest rates, and systemic barriers as major challenges. The bureaucratic requirements for accessing these “targeted” funds are insurmountable for many rural entrepreneurs.
Moreover, the delivery mechanism for this aid—the existing commercial banking infrastructure—is part of the problem. The very institutions that failed to spot systemic risks in the financial sector are now being asked to administer reform and promote inclusion. If that sounds ironic, it's because it is.
ADB loans, while ostensibly development-oriented, often result in capital outflows disguised as consulting contracts, technical advisory roles, and implementation agencies staffed by foreign firms. These funds are frequently looped back to donor countries in what economists call the “boomerang effect.”
In Sri Lanka, the proliferation of high-priced consultants from Manila, Singapore, or Australia—ostensibly to assist in capacity-building—has produced very little systemic reform. Meanwhile, local institutions remain weak, understaffed, and politically influenced.
Let’s be clear: if ADB’s involvement cannot sustainably build indigenous capacity or local governance mechanisms, then its assistance model deserves an urgent re-examination.
Sri Lanka’s long-term economic sustainability hinges on rural productivity, domestic manufacturing, and strategic investment in sectors like fisheries, agro-processing, and localized value chains. Yet ADB’s recent lending patterns are tellingly tilted toward urban-centric financial restructuring.
There’s little public evidence of large-scale ADB projects directly targeting rural industrialization. Despite the country's pressing need to increase exports and substitute imports through value-added agriculture, ADB’s portfolio shows more interest in digitized credit-scoring models and risk modeling workshops than in irrigation, fisheries infrastructure, or producer cooperatives.
In a country where nearly 80% of the population lives outside major cities, the omission of rural development as a central theme is more than a design flaw—it’s a development tragedy.
ADB has also been active in Sri Lanka’s power and energy sector—supporting reforms ostensibly to improve sustainability and energy access. Yet, here too, the pattern of non-transparency persists.
Reforms pushed under ADB-backed programs often involve tariff restructuring, corporatization of utilities, and privatization efforts. While some of these may be economically sound, their social implications are profound. In Sri Lanka’s case, hikes in electricity prices to recover costs—without a functioning social safety net—have disproportionately hurt the poor.
Moreover, clean energy projects funded under ADB loans are often structured in ways that favor international contractors and developers, rather than empowering local renewable energy firms or community-led energy initiatives.
Another buzzword in ADB’s Sri Lanka playbook is “digital transformation.” Funding has flowed into projects aimed at digitizing public services, improving access to finance through mobile banking, and creating digital ID systems.
But these programs raise critical concerns around data privacy, cybersecurity, and national sovereignty. The design and ownership of digital infrastructure in a geopolitically sensitive country like Sri Lanka should be matters of public debate. Yet, ADB-backed digital initiatives are often rolled out with limited consultation and even less scrutiny from civil society or data rights experts.
Furthermore, these programs tend to rely on proprietary software and foreign technical consultants—once again exporting capital and sidelining local tech ecosystems.
The fundamental role of any development bank should be to finance initiatives that governments and private investors cannot or will not support due to market failure or risk perception. But ADB’s increasing preference for policy-based loans, its opaque selection of partner institutions, and its reliance on cookie-cutter reform templates have put its developmental mandate into question.
When a development institution begins to operate like a transactional lender—more concerned with balance sheets than livelihoods—it loses the moral authority that underpins concessional lending.
And when it prefers short-term financial engineering over long-term socio-economic transformation, it ceases to be a partner in progress.
ADB repeatedly emphasizes that its loans promote “sustainability.” But the definition of sustainability cannot be limited to financial ratios and fiscal targets. True sustainability must incorporate ecological, social, and institutional dimensions.
In Sri Lanka’s case, the public debt burden continues to rise—even with ADB loans in the mix. Meanwhile, there is little improvement in key development indicators such as poverty reduction, food security, or job creation in rural areas.
Unless ADB radically rethinks its approach—grounding it in participatory processes, transparent mechanisms, and localized strategies—it risks becoming just another faceless financier in a country already drowning in debt.
It is time for the Sri Lankan government, civil society, and even concerned stakeholders within the ADB itself to ask the hard questions:
Who is truly benefiting from these loans?
Are policy reforms being designed in consultation with the public or imposed from above?
Why are rural and industrial development projects consistently underfunded?
What measures are in place to ensure transparency and public accountability?
And ultimately—how can multilateral finance serve the people, not just the system?
Sri Lanka does not need more technocratic templates. It needs a development strategy that listens to its people, invests in its producers, and strengthens its institutions. The Asian Development Bank, if it wishes to remain relevant in this new era, must transform from a gatekeeper of conditionality to a partner of empowerment.
Otherwise, it risks becoming just another creditor in a long line of external actors who promised progress but delivered policy paralysis.
Sri Lankans deserve better. And so does development itself.
-By Economic Correspondent
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by (2025-04-20 17:24:03)
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