ADB to increase lending to Sri Lanka this year

• To increase lending to US $ 600-800mn this year from an annual average of US $ 400mn
• Says remain positive about country’s economic potential: urges govt. to look beyond five years  

By Indika Sakalasooriya in Manila 

The Asian Development Bank (ADB) yesterday said it would substantially increase its lending to Sri Lanka this year as the country has undertaken larger development projects in recent times and its economy offers a tremendous growth potential compared to its South Asian peers.  

 According to Hun Kim, ADB’s Director General for South Asia, the development lender will increase its lending to between US $ 600 to US $ 800 million in 2018, a substantial increase from the current annual average of US $ 400 million extended to the country during the last three years. 

 «Sri Lanka is doing big projects compared to some of its South Asian peers. We look at Sri Lanka very positively. That is why we’ve decided to increase our lending this year to US $ 600-800 million.

This is a very big amount for a country with a population of 20 million”, Kim said on the sidelines of ADB’s 51st Annual Meetings currently being held in Manila, Philippines. 

The Manila based-development financier has been very generous in extending funding to both the State and private sector and has remained a close development partner of  Sri Lanka over the years. 

However, Kim pointed out the immediate need for Sri Lanka to up its game to achieve its true potential.

 “Sri Lanka is one country which really should grow. Our President visited Sri Lanka three years ago. We were all talking about Sri Lanka as the emerging star in South Asia.”

 “Sri Lanka needs to move up. The government must have a long-term vision to build the new engine of growth to bring the economy to grow above five-six percent. They have to look beyond five years,” Kim said.

 Sri Lanka recorded an economic growth of 3.1 percent last year— the lowest in 16 years, although the Central Bank says the potential growth would have been around 5.75 percent.

 Political uncertainty and weather-induced disasters, which negatively affected the agriculture sector, have been identified as the key reasons for the record low growth.

 However, Sri Lanka recorded a primary surplus in six decades, which the country’s Finance Ministry attributed to sound economic management. Yet, the country saw its overall budget deficit increasing in 2017 largely due to the sharp increase in interest expenditure.

 According to economic analysts, the biggest challenge Sri Lanka will face in the coming years would be the bunched-up foreign debt payments. The government estimates a whopping US $ 15 billion in foreign debt service payments during the four years from 2019 to 2022.

 The Central Bank is seen beefing up its foreign reserves this year through sale of sovereign bonds and term-loans in preparation to tackle this uphill task.
 Sri Lanka so far has an unblemished track record in paying back its loans.

According to the Central Bank Governor Dr.Indrajit Coomaraswamy, despite the short-term difficulties, Sri Lanka should not deviate from the economic reform agenda it has embarked upon.

“Sri Lanka’s growth must come from reform and not from deficit spending,” he told a recent forum in Colombo.

 Sri Lanka has an ongoing Extended Fund Facility (EFF) programme with the International Monetary Fund (IMF). A staff-level agreement was recently reached on the 4th review of the EFF subject to Cabinet approval of an automatic pricing formula for fuel.

 According to State-run utility, Ceylon Petroleum Corporation, they are losing Rs.266 million a week due to subsidized fuel sales.