People cross a street in Colombo on Nov 15, 2022. (PHOTO / AFP)

COLOMBO - The World Bank Group said it has approved $700 million in financing for two operations to help Sri Lanka implement foundational reforms.

The World Bank Group's Board of Executive Directors discussed the new Country Partnership Framework (CPF) for Sri Lanka, which aims to help restore economic and financial sector stability and build a strong foundation for a green, resilient, and inclusive recovery, it said in a press release on Wednesday.

The CPF, which covers the years from 2024 to 2027, lays out a two-phased approach that starts with a focus on urgent macro-fiscal and structural reforms and supports protecting the human capital and the most vulnerable population

The CPF, which covers the years from 2024 to 2027, lays out a two-phased approach that starts with a focus on urgent macro-fiscal and structural reforms and supports protecting the human capital and the most vulnerable population.

It comes at a time when the country is navigating a severe economic crisis that is having devastating impacts on people's lives and demands deep reforms to stabilize the economy and protect the poor and vulnerable, according to the statement.

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Sri Lanka's poverty rate is estimated to have doubled from 13.1 to 25 percent between 2021 and 2022, an addition of 2.5 million poor people, and is projected to increase by another 2.4 percentage points in 2023, it added.

"The extent of the crisis in Sri Lanka is unprecedented, but offers a historic opportunity for deep reforms to reset the country's economic storyline," said Faris H Hadad-Zervos, World Bank country director for Sri Lanka as quoted in the press release.

Also on Wednesday, Sri Lanka's cabinet approved a plan for domestic debt restructuring, the President's Media Division (PMD) said.

The PMD said the domestic debt restructuring program was proposed by the finance ministry and approved by the special cabinet meeting unanimously.

Sri Lankan President Ranil Wickremesinghe said earlier that the debt restructuring process would not affect the stability of the banking system.

No new taxes on citizens

Meanwhile, the Sri Lankan government will not impose new taxes on its citizens to raise revenues, State Minister of Finance Ranjith Siyambalapitiya said.

Siyambalapitiya said in a press release that the government will expand the tax base and thereby raise state revenues.

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The Inland Revenue Department currently maintains 291,677 tax files, but the goal is to expand this number to 1 million, he said.

Highlighting the positive progress in the Sri Lankan economy, the state minister affirmed that the country's recovery has alleviated the economic hardships faced by its people.

Sri Lanka is struggling with the worst financial crisis since its independence from Britain in 1948 after the country's foreign exchange hit record lows and triggered its first foreign debt default last year. 

It has increased the personal income tax rates and lowered tax thresholds from January 2023 in a bid to raise income.