By Uditha Jayasinghe 

in Frankfurt

Over the next four years Sri Lanka could see fund disbursement from the Asian Development Bank (ADB) top $600 million per annum as the global lender increases loans to foster more connectivity in the world’s fastest growing region.

However, ADB South Asia Department Director General Hun Kim told Daily FT that the Sri Lankan Government would still have to find ways to push local growth as the country has already missed the demographic window to have labour intensive manufacturing industries that was at the core of the East Asian growth model.  

“Sri Lanka is a puzzle to us…. When you look at Sri Lanka in theory we should not be there. Sri Lanka has its fundamentals in place along with good health and education standards,” he said. “But the country cannot sustain its expenditure. Revenue is weak and it needs Government income to increase.”

The ADB is planning to launch an economic study to understand how Sri Lanka can foster growth to hit about 8% over the next decade to put the island on a sustained growth path. With its current level of disbursement Sri Lanka is set to receive over $2 billion before 2020.

“We look at numbers. The ADB expects things to improve in Sri Lanka. We are different from the IMF, even though debt is high it is not at a level for the ADB to worry about,” he added.

In 2015 Sri Lanka received $528 million in disbursements from the ADB for projects in three major sectors. The largest of these was for an integrated road investment programme costing $200 million while $178 million was allocated for the Greater Colombo Water and Wastewater Management Improvement investment programme. The smallest cache of $150 million was for a Mahaweli water security venture.      

In the next four-year country programme the focus on infrastructure is set to continue, Kim noted, adding that the bank was dedicated to increasing connectivity within the region so that other south Asian countries can gain from India’s exponential growth. Sri Lanka, Bangladesh and Nepal are three countries within the region that can leverage India’s acceleration as the world’s fastest growing economy, he said.

ADB officials will meet in New Delhi next week to review investment projects in South Asia and prioritise funding for them. One of the key discussion points will be India’s first sea economic corridor that could link with East Asia.  

Spanning more than 800 kilometers of India’s eastern coastline, the Vizag–Chennai Industrial Corridor (VCIC) is part of the country’s East Coast Economic Corridor. India’s first coastal economic corridor can help unify the country’s domestic market, integrate its economy with Asia’s global value chains, and support the Made in India initiative to spur manufacturing, believes ADB.

Greater connectivity and economic integration between South Asia and the rest of Asia is likely to contribute significantly to development and foster regional cooperation as well, insisted Kim pointing out the Indian Government has indicated a willingness to change its previously closed off policies in favour of doing business with Bangladesh, Nepal and Bhutan.

“The ADB has been engaging with South Asia and promoting integration for over 15 years and for the first time we can see a clear shift towards trade cooperation,” he said.

South Asia and Southeast Asia cross-regional trade has increased 23 times from $4 billion to $90 billion from 1990 to 2013. But Southeast Asia’s share of South Asian trade rose from 6% to only 10%, whereas South Asia’s share of Southeast Asian trade doubled from about 2% to 4%. The same story applies to cross-regional investment and cross-regional financial flows. Southeast Asia only accounted for 15% of total South Asian foreign direct investment (FDI) outflows during 2009–2013 and South Asia only received 9% of Southeast Asian FDI, according to ADB reports. 

Govt. seeking PPPs need to up their game: ADB

Governments gunning for Public-Private Partnerships (PPPs) should implement good regulations including transparent dispute resolution mechanisms to share cost and risk to attract private sector investors, a global lender said yesterday.

Asian Development Bank President Takehiko Nakao in his final press conference at the end of the ADB Annual Meeting in Frankfurt acknowledged that PPPs are essential to bridge the funding gap in many countries.

“Countries with long term financing needs for infrastructure need to connect with the private sector for a more assured flow of income. Governments need to establish a good way of sharing costs and risks. They need good regulations and dispute resolution mechanisms. Unless these are given the private sector will not invest,” he told reporters.

The Sri Lankan Government has also mooted PPPs as the way forward, especially to reform and inject cash to stumbling State Owned Enterprises (SOEs). The Government last week wrote off $3.2 billion in SriLankan Airlines debt to make it attractive to a private investor and has indicated it has more projects in the pipeline. One such project is the Mattala airport, according to Government spokesman.

However, PPPs are not a panacea, cautioned Nakao. He insisted Governments still have to increase their revenue to fund their own development projects, especially infrastructure.

The ADB during the Annual Meeting scaled up their operations by merging the Asian Development Fund (ADF) lending operations with the Ordinary Capital Resources (OCR) balance sheet, which will become effective on 1 January 2017.

This will increase ADB annual loan and grant approvals by over 50%, to more than $20 billion by 2020. ADB loan and grant approvals were a record $16.3 billion in 2015, an increase of 21% over 2014 levels. Under this new expansion funds to South Asia will also increase with the bulk of over $2 billion going to India. Pakistan and Bangladesh are also likely to gain larger shares for energy, infrastructure, skills and health, Nakao said.

As the fastest growing region in the world South Asia will continue to receive more than 25% of overall ADB funding with the organisation likely to go for a capital top up if necessary before 2020. According to ADB projections India will grow by 7.5%, Pakistan by 4.5% and Bangladesh by 7.5% this year.

ADB will also partner with the Asian Infrastructure Investment Bank (AIIB) to increase its funding capacity, the ADB President said.