MONETABRIEF – Sri Lanka has inked an agreement for a 200 million US dollar budget support loan from the Asian Development Bank, the Finance Ministry said.
The loan is under the Trade, Investment and Industry Development Program- Sub Program 1 under the Policy Based Lending or budget support facility.
After the Middle East war, Sub Program 1 was upsized to 200 million dollars.
The agreement was signed by Treasury Secretary Harshana Suriyapperuma and Shannon Cowlin, Country Director, ADB Sri Lanka Residence Mission.
Budget support loans are used to repay debt.
Sri Lanka missed indicative reserve targets under an International Monetary Fund program for March, which reduced from the original target, after the central bank cut rates claiming historical inflation was low and boosted credit and imports.
The IMF program became sharply flawed from early 2025 as a requirement to trim its domestic assets was removed, allowing the agency to build up high levels of excess liquidity by expanding the note-issue.
The central bank also monetized commercial dollar reserves injecting liquidity and making it more difficult to collect reserves with inflationary policy.
Under 'exchange rate as the first line of defence' the central bank then defaults on its note-issue (dishonors the notes), leading to monetary debasement and public unhappiness.
There calls for the Treasury to buy its own dollars, which does not lead to monetization of the balance of payments, the build up of excess liquidity to the lack of a falling ceiling on net credit to government in the IMF program leading to a build-up of excess liquidity.
It would deny an opportunity for the central bank to default on its note-issue and also prevent exchange rate policy errors from undermining democracy
After the currency collapsed, inflation hit 7.3 percent in July. (Colombo/Aug19/2026)