Tuesday, June 25, 2024

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Foreign donors hold back project finance to Sri Lanka

Foreign financing for ongoing mega projects is being held back in the current socio –political instability in the country, further straining Sri Lanka’s economy, official sources said.

International financial institutions, development agencies and donor countries have suspended release of funds for these projects which are being halted midway.

“A lot of foreign funds for development projects are held up following the grave economic crisis and public protests as well as the Central Bank’s announcement of preemptive default on foreign debt,” a senior Foreign Ministry official confirmed.

Foreign donors were closely monitoring political developments in the country before releasing their balance tranches for the ongoing mega projects, he added.

As at the end of 2021, 325 mega scale development projects worth approximately Rs.6.9 trillion have been implemented under 47 line ministries with foreign and domestic funding.

Including three projects which started in the fourth quarter 2021, there were 98 newly initiated projects worth Rs. 2.6 trillion, Finance Ministry data showed.

Out of the allocated provision for total number of mega scale development projects for year 2021, 68 percent has been utilised at the end of the last year and 32 per cent will be held up.

It is observed that the financial progress could have been increased further, if clearing bottlenecks such as delay in procurement, shortage of construction materials and limitations in importations of mega scale projects were adequately assisted, finance ministry sources said.

However at present the whole public administration process has come to stand still after months of tensions within the government and unrest among the people suffering from the decline in living standards long and frequent power cuts and a 25- 70 percent increase in food prices, officials added.

Meanwhile newly appointed Treasury Secretary Mahinda Siriwardene has ordered all new eprojects and those that have been started and stalled due to lack of raw materials to be suspended.

“Enhancing the government revenue is a crucial requirement to control this challenging situation,” Siriwardene said.

“However as it takes a certain time, public expenditure needs to be well-tightened, making it available only for the most essential services for a certain period.”

In the case of half-completed projects, negotiations have to be held with contractors.Officials have also been asked to stop acquiring lands or other assets.

Requirements which have commenced but where letters have not been issued should be delayed.Circulars issued earlier containing current spending would continue.

Sri Lanka’s state finances got into a fix since 2019 due to ‘revenue-based fiscal consolidation’ in which the usual spending-based consolidation was abandoned.

Recurrent spending was pushed up to over Rs 3trillion and total spending rose to Rs 4 Tn, a marginal decline of about Rs 30 billion from the approved allocations for 2021

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