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.

Daily News Editorial

Aid and development

04 November 2016

Sri Lanka is on a rapid path to development, but local funds are often not available for big projects that cost millions of dollars. With Sri Lanka reaching Middle Income status sometime back, foreign aid per se is often in short supply. In fact, this is the status quo for many developing countries. Caught between these two ends, most developing countries opt to obtain foreign loans for their development projects. It is the best option to raise funds in the short term.

It is up to the individual countries to make the best use of these loans, some of which are obtained on commercial rates. Foreign loans, as a rule, must only be used on the most essential projects. Nevertheless, the previous Government squandered millions of dollars obtained via loans from China and various other countries on “white elephant” projects such as the Mattala Rajapaksa International Airport which had no commercial viability. This is a criminal waste, since the loans have to be paid back by the people regardless of a given project’s viability.

On the other hand, there should be no dispute about the fact that development has to be continued regardless of which party comes to power. It is just a matter of identifying which projects deserve to be on the broad development agenda. For example, there was a general consensus among all political parties on the need to build a network of expressways around the country. By a lucky coincidence of events, the first expressway was built during the previous Government’s tenure, but any other Government too would have carried out the project. In fact, a part of the Outer Circular Highway (OCH) project initiated by the previous Government was completed and opened after this Government came to power. This goes on to show that regardless of the party in power, development should continue unabated. This policy has generally been followed by all Sri Lankan Governments.

It is thus vital to keep politics and development on separate tracks since all Governments and political leaders agree on the need for development. It is however perfectly acceptable to point out shortcomings of projects such as Mattala which could have become a huge drain on our financial capacity and resources if not for Prime Minister Ranil Wickremesinghe’s recent initiative where foreign investors have been invited to make Mattala and Hambantota Port viable entities. For example, a Chinese concern will acquire an 80 percent stake of the Hambantota Port. These measures are estimated to save at least US$ 1 billion that would have gone for debt servicing.

China has been one of Sri Lanka’s closest friends and development partners. It has been involved in many projects in Sri Lanka from the 1960s. There are many allegations against the former Government that it had obtained huge loans from China for projects with little or no return on investment and that major acts of corruption have taken place in implementing these. A debate has been created in the media and society about statements made by Finance Minister Ravi Karunanayake in this respect.

Now the Chinese Ambassador to Colombo Yi Xianliang has weighed in on the matter, saying issues concerning development and business should not be politicised. The Ambassador has rightly pointed out that Sri Lanka should have consistent policies, regulations and laws which do not waver with political upheavals in order to attract foreign investment and spur economic growth. This must also apply to sectors such as health, education and foreign relations. As the Ambassador pointed out, investment promotion policies, management systems and legal systems should also be further improved.

Sri Lanka should now aspire to end the “aid mentality” and focus more on trade and investment. This is in fact the mission of Prime Minister Ranil Wickremesinghe, who has emphasized at many forums abroad that Sri Lanka was open for trade and investment. This rationale is the thrust behind moves to sign Free Trade Agreements (FTAs) with China and Singapore as well the Economic and Technical Cooperation Agreement (ETCA) with India, with which Sri Lanka already has an FTA. The authorities must strive to enhance Foreign Direct Investments (FDIs) flowing into the country.

As the Prime Minister stressed recently, Sri Lanka is strategically located between the two Asian powerhouses Dubai and Singapore, which should make it an ideal investment destination with an educated workforce. Sri Lanka is also regarded as the gateway to South Asia, home to one fifth of the world’s population. Sri Lanka and all SAARC countries must work together to increase trade within the SAARC region, which is now minimal.

Global cooperation is the way forward for development. South-South cooperation is also vital – developing countries can and should help each other in numerous ways, even if they might not have excess funds to be given as grants or loans. There is enough room for competition as well as mutual cooperation among the developing countries, all of which aspire to achieve prosperity.

The Island Editorial

A dramatic role reversal

04 November 2016

 

The Joint Opposition (JO) is planning street protests to demand Prime Minister Ranil Wickremesinghe’s resignation over the mega bond scams at the Central Bank under his purview, we are told. But, it is doubtful whether the JO leaders will go the whole hog to pressure Wickremesinghe to quit. For, former President Mahinda Rajapaksa himself has been full of praise of Wickremesinghe. The JO’s enemy No 1 is not the PM but President Maithripala Sirisena. It will be interesting to see how the JO handles the bond issue. There may be more barks than bites, so to speak.

Ministers Champika Ranawaka and Rajitha Senaratne have, true to form, leapt to the PM’s defence. They have sought to rubbish the JO’s claim that the blame for the bond scams should be apportioned to the PM. Their contention is that the COPE (Committee on Public Enterprises) report has not mentioned the PM’s name and, therefore, he cannot be held accountable for what former Central Bank Governor Arjuna Mahendran has done. One is intrigued.

Ranawaka and Senaratne broke ranks with the Rajapaksa government before the last presidential election and became self-appointed champions of good governance. They are now pretending that they had nothing to do with that administration of which they were Cabinet ministers!

In an interesting turn of events replete with irony today Ranawaka, Senaratne et al have had to defend a government accused of corruption, cronyism, nepotism and abuse of power. The Rajapaksa loyalists who lost power owing to similar charges are now campaigning for good governance! This is a dramatic role reversal. It looks as if ‘old thieves’ are clashing with ‘new thieves’ in the name of good governance.

Why Ranawaka and Senaratne are defending Prime Minister Wickremesinghe to the hilt is understandable. He is their saviour. They would never have been able to get elected to Parliament last year if they had not been allowed to contest the 2015 general election on the UNP ticket.

In June this year, Minister Senaratne told the media that he had never said former President Mahinda Rajapaksa himself stashed away public funds; he blamed those who had been around Rajapaksa for that. But, the fact remains that he decamped and campaigned for defeating Rajapaksa. Therefore, how can he claim the PM should stay put in spite of charges of corruption against the latter’s chums? It may be recalled that Minister of Law and Order Tilak Marapone was made to resign for defending Avant Garde security firm, which has got into hot water over a floating armoury. Even some of the UNP ministers were out for Marapone’s scalp for what they called shielding the corrupt.

Senaratne has said there is media freedom today and journalists are free to take on the government. True, there have been no attacks on media institutions since the change of government last year and no journalist has got a white van ride. So far so good! But, the media continue to be under political pressure and some journalists have been hounded out of their jobs.

The present government consists of several politicians who have a history of snuffing out many a young life. Both the SLFP and the UNP have suppressed media freedom and harmed journalists. The present-day rulers baulk at resorting to the same methods as the Rajapaksa administration in dealing with the media not because they uphold the freedom of expression but because they are not strong enough to resort to force. If they had been in a position to muster a two-thirds majority in Parliament on their own, they would have bared their fangs. Their evil intent and hatred towards the media become manifestly evident when they speak daggers to journalists at the drop of a hat.

Many journalists had the courage to criticise the Rajapaksa government and they are critical of the present dispensation as well. Threats, veiled or direct, will not deter them. It is thanks to them that the government’s determined efforts to sweep the bond frauds under the carpet came a cropper.