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Economic crisis: Project funds rescheduled to meet urgent needs

30 Apr 2022

  • WB and ADB rescheduled and restructured lending pipeline: Dy. Treasury Secretary
  • Price escalations to affect impending and ongoing projects: RDA DG Weerakoon
By Maheesha Mudugamuwa In the midst of a severe economic crisis with dwindling foreign reserves and a Government unable to afford the cost of essential imports, the Finance Ministry has called on lending parties to repurpose some of the non-essential components towards managing the emergency crisis situations in the country, The Sunday Morning learns. It is learnt that the Government has decided to go ahead with essential development projects that have already been committed. Speaking to The Sunday Morning, Treasury Deputy Secretary R.M.P. Rathnayake said the Government has been discussing with the World Bank (WB) and the Asian Development Bank (ADB) and they have already rescheduled and restructured the lending pipeline. “Most of the non-essential components will be prioritised to meet urgent expenses,” he added. The Treasury Deputy Secretary noted that only important foreign funded projects would continue and based on the contractual agreements the project finances would be reviewed so as to assess the dollar rate fluctuations. “We are continuing foreign funded projects but we are discussing with the lending parties to repurpose some of the non-essential components towards managing the emergency crisis situation. We have been discussing this with the WB and ADB. They have already rescheduled and restructured the lending pipeline. Most of the non-essential components will be prioritised to meet urgent expenses,” he added.   Commenting on the effect of the US Dollar rate fluctuations, Rathnayake said: “This is basic contractual management and for each provision on how we are going to convert currency, we need some kind of review. They are managing it with tender and procurement committees.” Elaborating on the total foreign funds received by the country, he said that the Government expects around $ 1,500 million.   When asked about the process through which the foreign funds are received, Rathnayake said that based on the implementation and disbursement plans of each project, the funds are paid by the respective lender either directly or through organisations. “Those funds come through the Treasury, but without their agreement or discussion we can’t utilise that money for other purposes. We can manage the cash flow for one or two days, but not for long,” he added. As per the statistics available with the External Resources Department (ERD), by the end of April 2021, the Government’s total outstanding external debt was $ 35.1 billion. Total debt service payments from 1 January to 30 April 2021 amounted to $ 981 million, of which $ 520.6 million was in lieu of principal repayments and the balance $ 460.4 million for the payment of interest. The Government has committed to aligning required financing on high priority development projects since the beginning of 2020 to curtail foreign debt exposure while creating non-debt financed projects. As such, the Government obtained foreign loans amounting to $ 1,710 million in the first eight months of 2021. This consists of Official Development Assistance (ODA) worth $ 901.9 million, of which $ 28.6 million was made in the form of grants and the balance $ 873.3 million was made as loans. A further $ 500 million and another RMB 2,000 million as a Foreign Currency Term Financing facility from the China Development Bank was raised at very competitive terms compared to the market rates, according to the ERD.   Meanwhile, as of now, the major development projects that are currently undergoing construction are Section I of Ruwanpura Expressway that has been awarded to a local company with local funds and a part of Section III of the Central Expressway Project (CEP) that is also being constructed by the Road Development Authority (RDA) with local finances to avert further delays. However, there is no final decision on the proposed elevated highway project from New Kelani Bridge to Athurugiriya which saw vehement opposition from residents in Battaramulla, as the proposed highway was to be constructed over the remaining areas of Colombo’s wetland in Thalangama and Averihena. At present, Section I and III of the CEP are under construction. Section I is being constructed with Chinese funds while the construction work on Section III was begun by the RDA with local funds until a suitable contractor was finalised. The total price escalation as calculated by the RDA a year ago for Phase I and III of the CEP, which were to be funded by China and Japan, was estimated at around Rs. 13 billion in April 2021. The calculations were made when the rupee value against a dollar was at Rs. 197 as in April 2021. As per statistics, the dollar traded at over Rs. 350 last week. According to calculations made in 2021, the Government had to pay Rs. 7 billion to the Chinese contractor due to the delay in commissioning the construction of Section I of the CEP, for which the contract agreements were signed in 2015. Speaking to The Sunday Morning, Road Development Authority (RDA) Director General L.V.S. Weerakoon stressed that the upcoming price escalations would affect the already committed projects as well as the projects that are at the procurement stage. He explained that the RDA would assess the price escalations and it would have to incur some of those escalations and revise the project cost accordingly. Furthermore, Weerakoon noted that there could be delays in projects that had not yet commenced. “Some projects could face delays,” he said. Nevertheless, the Director General stressed that the total loss that the Authority would have to incur because of the ongoing economic crisis had not been assessed as yet.  


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