The Asian Development Bank approved a $350 million loan on Monday for bankrupt Sri Lanka, buttressing an IMF bailout as the country battles its worst economic crisis.

The loan will help stabilise the economy of the South Asian nation, the ADB said, after Sri Lanka ran out of foreign currency and defaulted on its $46 billion debt over a year ago.

The Manila-based lender was committed to supporting "Sri Lanka as it addresses its present challenges and strides toward economic stabilisation, sustainable recovery and inclusive growth," ADB President Masatsugu Asakawa said.

The latest cash injection comes just over two months after the International Monetary Fund released $330 million as the first instalment of a $2.9 billion, four-year bailout linked to Colombo undertaking painful reforms.

"Transparency and open communication will be crucial in building agreement around the reforms," the ADB said in a statement, referring to Colombo's plans to privatise state enterprises.

Last week, the IMF asked Sri Lanka to speed up its debt restructuring and warned any delays could undermine efforts to overcome the country's financial woes.

The crisis led to severe shortages of food, fuel and medicines last year and triggered months of protests that led to the toppling of former president Gotabaya Rajapaksa in July.

The new government has doubled taxes, scrapped energy subsidies and announced it is selling off state enterprises to raise revenue.

Foreign debt restructuring was held up as the country's main bilateral creditor, China, was initially reluctant to take a haircut and instead offered more loans to pay off old debts.

Just over $14 billion of the total foreign credit is bilateral debt to foreign governments, 52 percent of which is owed to China.

Beijing initially proposed a two-year moratorium on the repayment of its debts, but without accepting a reduction in the amount, an insufficient concession for the IMF.

The terms of China's debt restructuring have not been made public.

AFP