Ceylon Today Editorial

$ 2.4B from ADB

04 November 2016

The Asian Development Bank (ADB) has pledged lending to the tune of US$ 2.4 billion spread over a period of three years, beginning from next year. This was said by ADB's Senior Country Economist Sri Lanka Resident Mission Tadateru Hayashi at a function in Colombo yesterday.

Speaking at a European Chamber of Commerce of Sri Lanka organized seminar yesterday, he said that the projects cover agriculture, SMEs, transportation, energy, education, capital market development and public-private partnerships.

The loans pledged comprised US$ 693.13 million for next year, $ 830.83 million for 2018 and $ 896 million for 2019. These pledges are a substantial increase from the ADB pledges made in recent times.

For instance, the pledge for last year was a relatively small figure of $ 500 million, whereas the figure for this year was ramped up by as much as 40% year on year to $ 700 million. Hayashi, without elaborating why this ramp up was made, however said that with the new government, which was elected to power in January 2015 and its emphasis on inclusive growth, the ADB has decided to commit itself to agriculture.

The inference made by Hayashi in that aspect of his speech was that the previous Mahinda Rajapaksa regime was not pro-inclusive growth and also for inclusive growth to take place, in poor or developing economies such as Sri Lanka, agriculture cannot be ignored.

Nonetheless, it is difficult to find agro-based economies coming out of poverty, a classic example of which is poverty riddled Sri Lanka, though, the economy, especially after its opening up, has moved more towards a services economy, where over 50% of the country's GDP is contributed from that sector alone.

On the other hand, agriculture, which employs a sizeable number of labour, contributes to under 10% in value of overall GDP. That is a reflection that there is waste and low productivity in that sector compared to other sectors of the economy.

Therefore, there is a question mark as to whether the total sum of $ 193.13 million pledged for the agriculture and fishery sector next year, $ 30.83 million in 2018 and $ 173 million in 2019, are productive investments. This is in the context that the ADB's over-arching objective is to rid Asia in particular of poverty.

The target areas are bringing wet zone water, primarily to the arid parts of the Wayamba in a project costing, at least on ADB's side, an amount equivalent to $ 333.83 million, spread over a three-year period beginning from next year, according to Hayashi.

And the other, $ 63.13 million to be released next year for the development of three fishery harbours in the Northern Province. ADB funds pledged are disbursed over a five-year period in equal tranches. Hayashi said that ADB loans are fully utilized, inferring that none of the aid pledged, goes back to their head-office in Manila as unutilized funds.

ADB's funding charges on these loans comprise two levels. Those are at an interest cost to the borrower, in this instance the Government of Sri Lanka, at 2% spread over 25 years with a five-year grace period. This type of lending by the ADB is called concessional funding, also identified as money from the 'Asian Development Fund' (ADF).

The other source of funding will cost the borrower six months London Inter-Bank Offered Rate (LIBOR) plus 60 basis points (bps). The payback period for these types of loans is 20 years and is known as moneys disbursed from the ADB's 'Ordinary Capital Resources' (OCR). This type of funding Hayashi identified as commercial lending.

Nonetheless, with six months LIBOR at 1.26%, its rate is more akin to concessional funding, even with the premium of 60 bps added on, when considering the much higher borrowing costs from capital markets, or even from China, said to be Sri Lanka's largest lender.

Other areas of targeted lending are $ 100 million for skills development next year and a 100 MW wind power project at Mannar at a cost of $ 200 million, also next year. Hayashi said that with 98% of the country 'electricity covered,' the ADB wants to extend this coverage to 100%.

Development of secondary road projects in the Northern and Uva Provinces at a cost of $ 100 million and a desalination plant for the Jaffna and Kilinochchi areas at a cost of $ 100 million are some of the other projects in the pipeline, next year.

Projects for 2018 include $ 100 million for the uplift of science and technology, $ 200 million for roads, another $ 200 million for a 'port access road' project and a $ 100 million rail project, South of Colombo.

Planned projects for 2019 include a $ 150 million solar electricity project, $ 193 million transportation project covering the Northern, Eastern and Uva Provinces and $ 180 million Greater Colombo Waste Water Treatment Project.

ADF and OCR will merge next year, giving a much larger source funding being made available, said Hayashi, who also said that the ADB will be celebrating its fiftieth anniversary next month.