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The International Finance Corporation (IFC), the World Bank’s investment arm, said it will provide Sri Lanka a $400 million cross-currency swap facility to help fund essential imports.

Three private banks, which together deal with over 30% of Sri Lanka’s remittances and exports, will receive the facility to fund essential imports, including medicine, food and fertiliser, the IFC said in a statement on Monday.

The funds will provide a much needed foreign exchange cushion for Sri Lanka, which is grappling with its worst financial crisis in over seven decades, partly triggered by a severe shortage of dollars.

The island nation’s economy is estimated to have contracted by 9.2% in 2022 and is expected to shrink a further 4.2% in 2023, according to World Bank data.

Joon Young Park, IFC’s portfolio manager, financial institutions group for South Asia. “We expect this financing to boost confidence in the investor community, attract fresh capital inflows to support the Sri Lankan economy.”

IFC is also working on further plans to support client banks with other long-term funding and advisory services in the future, the statement added.

Sri Lanka signed a preliminary agreement with the International Monetary Fund (IMF) for a $2.9 billion bailout last September but has to put its debt on a sustainable repayment track before the funds can be disbursed.