Government to settle Rs.175bn construction industry outstanding payments from capital allocations

The government has taken a policy decision to settle the outstanding payments owed to the construction industry from the capital allocations of 2023, which is approximately Rs.350 billion, Chamber of Construction (CCI) CEO/Secretary General Eng. Nissanka N. Wijeratne told the BuildSL exhibition launch ceremony held in Colombo recently.

The outstanding payment towards the industry stood at Rs.200 billion. But, with a few payments it has come down to about Rs.175 billion and the government has begun to settle the outstanding payments as and when the money becomes available to the ministry.  
Following an earlier decision, the government settled some of the payments with bonds of the tenure of two and a half years and 22.5 percent interest rate, Wijeratne said.

“The other factor that has affected the industry is the indefinite suspension of contracts and projects.  We made several representations that any suspension of contracts to be done in a much planned manner not abruptly, but unfortunately the government has not listened to this and because of that some of the capital expenditure that went into those projects might get wasted,” Wijeratne noted.

“Another factor that has really affected us is the increased interest rates and banks’ reluctance to support the construction sector.  Some banks consider the construction sector as a plague. 

About 22.5 percent of the exposure of commercial banks is to this sector. Unless banks extend support,when the sector goes down, we will carry the banks also down the hill,” he cautioned.
Wijeratne also highlighted the negative impact of sharp increase in material prices related to the construction sector. 

“We analysed during the last two years that most of the building construction materials increased from 150-300 percent.The irony is these price increases are not reflected in some contracts. There have been several contracts given in the State sector on fixed price terms violating the government procurement guidelines. 

Because of this, we made some representations to the government and a Cabinet decision was taken to allow price escalations even if the contracts didn’t have specific provisions, but subject to a 20 percent total limit on the contract sum,” he said.

Wijeratne noted that one of the options to keep the construction industry above water will be to attract more FDIs.“But, attracting investments have many obstacles mainly corruption in the system, because investors will want a fair playing field to invest. The other avenue is to encourage export of construction services, but the main obstruction is obtaining bonds and guarantees to undertake work abroad.”

“You have to get bonds and guarantees in foreign currency and the issue is our commercial banks  not being in a position to issue bond and guarantees in foreign currency, and even if they do so, most of the foreign clients won’t accept it because of the downgrading of our banks by rating agencies,” he added. Wijeratne revealed that the industry has proposed to the President and the government to establish a presidential commission or taskforce to look into these problems and make sensible suggestions. However, the proposal hasn’t been given the green light yet. 

In the third quarter of 2022, the Sri Lanka economy contracted by 11.8 percent and the construction industry shrank by 33.2 percent. This was the fifth consecutive quarter where the construction sector contracted.

The construction industry used to contribute 8-10 percent to the national GDP, but during the last year it came down to 6.1 percent.  This industry used to provide employment to over 1.2 million people—direct employment to 650,000 and indirect employment to 600,000.

Meanwhile, the 18th BuildSL 2023 exhibition will be held from May 26-28 at the BMICH.  Fentons Ltd, Dialog Axiata PLC, Guangdone Kin Long (Pvt) Ltd, Softlogic Retail Ltd, Ajax Engineering (Pvt) Ltd, Lex Duco (Pvt) Ltd, Alumex Group, Rhino Roofing Products Ltd., Advantis Engineering and Insee City Cement (Lanka) Ltd will sponsor the event.