Sri Lanka will get about $600 million, on a staggered basis, from the Asian Development Bank after the International Monetary Fund releases the second tranche of a $2.9 billion bailout for the crisis-hit country, an official said on Tuesday.

Sri Lanka is inching out of its worst financial crisis in decades, triggered by record-low foreign exchange reserves last year that saw its economy contract 7.8% in 2022.

The island's economy has been gradually stabilising after locking down a four-year programme with the IMF in March. Its first review is expected to be approved by the global lender next week, which will release a second tranche of about $334 million in funding.

Alongside the IMF programme the Asian Development Bank is likely to provide total budget support of $2 billion over the next four years, said ADB, Sri Lanka Resident Mission, Country Director Takafumi Kadono.

"I would say $500 million to $600 million budget support is what is planned (for 2024) but, again, it is subject to attainment, satisfying the policy actions, so its not free money," Kadono said in an interview with Reuters.

The bulk of the support will likely be extended next year in a combination of policy-based loans and project lending.

The first instalment of $200 million is tabled for ADB board support on Dec. 8 but will only be given to Sri Lanka after the IMF approves its first review on Dec. 12.

Another $200 million for power sector reforms is expected in 2024, along with $100 million to the water sector and $50-$70 million for the tourism sector.

An additional $100 million is earmarked in ADB support to improve access to financing for small and medium-sized enterprises, along with another $100 million to improve public finance and debt management.

Sri Lanka has to remain committed to pushing forward reforms pledged under the IMF programme, Kadono said, which include restructuring its loss-making state enterprises, reducing budget deficits and improving governance.

"These are not bandage measures. I think Sri Lanka has done a lot of that in the past so, I think it’s really time to fix the fundamentals of the economy and to address these latent weaknesses in the economy and the institutions," Kadono said.

(Reporting by Uditha Jayasinghe; Editing by Sharon Singleton)