Govt. to change course to further minimise reliance on foreign borrowings

• Cabinet decides to convert foreign-funded projects to various other arrangements
• To give priority to PPPs, where risks and rewards will be shared with private sector

The government has decided to further mitigate its reliance on foreign borrowings as the Cabinet of Ministers agreed to convert all foreign-funded projects planned for next year into various other arrangements, which would not swell the country’s already high 
foreign liabilities. 

At the Cabinet meeting held on Monday, the ministers agreed to convert all project loans denominated in foreign currency to BOT or BOOT—shortened for build, operate, transfer and build, own, operate, transfer—or similar arrangements. 

At the same time, the government is also looking to prioritise projects under public private partnerships (PPPs), where the risk and rewards will be shared between the government and the private party. 

Any additional funding in foreign currency is expected through foreign direct investment (FDI) flows brought in by foreign investors for projects operational in the medium to long-term. 

The budget 2021 estimates US$ 1.8 billion worth of foreign currency denominated loans for 2021 under ‘project and programme loans’ from multilateral lenders such as the Asian Development Bank, the World Bank and Japan International Cooperation Agency (JICA). 

While such loans mostly come as concessional borrowings with longer repayment and grace periods, the decision by the Cabinet of Ministers applies predominantly on commercial borrowings. 

However, it is uncertain to what extent the government will be able to convert the entire commercial borrowings denominated in foreign currency budgeted for 2021 to other arrangements.

The government has been explicit about its plans to mitigate its reliance on foreign borrowings and eyes only US$ 1.4bn as commercial foreign borrowings in 2021.