The composition of Sri Lanka’s foreign financing has undergone a major shift from concessional to non-concessional loans in 2012 with the country’s graduation to a middle income country, the latest Finance Ministry annul report showed. Up to 2011, the majority of the foreign financing came in the form of concessional loans from multilateral financing institutions and bilateral development partners and in 2012 the trend was reversed with nonconcessional financing consisting of the major part of foreign financing. (Refer chart)
As the annual report noted, the amount of concessionary loans in the annual loan portfolio has declined gradually from US$ 2.6 billion in 2006 to US$ 1.5 billion in 2012 while nonconcessional financing has increased from US$ 260 million to US$ 1.7 billion during the same period in the recent past.
According to the Finance Ministry, the concessional assistance from western bilateral partners in the Europe has diminished significantly and financing in the form of export credit has taken prominence.
The global economic downturn as well as the recent Euro Zone crises have also underpinned the reduction of concessional financing to low income countries in general.
Showing a similar pattern, concessional financing from multilateral partners has also come down over the past few years.
As a result, the Sri Lankan government has approached the non-concessional window of the World Bank, International Bank for Reconstruction and Development (IBRD) to expand financing options.
As access to concessional financing is limited, the government has gradually moved towards mobilizing long-term funds with maturity generally exceeding 15 years and is channelling such funding to finance infrastructure development projects.
As the annul report noted, the non-concessional borrowing was carried out to implement commercially-viable development projects “which can generate sufficient cash flow to service the respective loans.”
During the last few years, Sri Lanka saw the construction of a brand new port in Hambantota, an airport in Mattala and an expressway linking Colombo and Galle, with a few more expressways currently underway.