How bad are external financial prospects?
There is good reason to believe that year 2012 will not be good for external finances and the government (Treasury) and the Central Bank (CB) are concealing the full picture from the public. It is not news that the two are at loggerheads about the rupee exchange rate; the CB is determined to prevent devaluation below Rs114 to the $, is selling dollars and buying rupees, while the Trea- sury won’t mind the rupee floating down another 5% to avoid depleting reserves. CB’s case that reserves are comfortable at $6 billion is misleading since it spent $1.6 billion in the last two months to support the rupee, and reserves are well below the $8.2 billion peak of August 2011. The crucial factor is that all indicators for the rest of the year point further southward. The quantum of Chinese funds injected into the economy has grown considerably in the last five years. Most is for projects and that in principle is good if the infrastructure development contributes to growth. Unfortunately, many will not. The Hambantota harbour development which in the end will cost $1.3 billion (all stages), the Mattala airport $230 million, the Nelum Pokuna Theatre extravaganza $26 million, and the planned show tower off McCallum Road $105 million, are a plain downright waste of
money. The harbour and airport are unvarnished white elephants. Sound infrastructure projects
The Norochcholi power station ($450 million) and the southern highway ($600 million) are in principle the type of sound infrastructure projects that should be encouraged though the former has run into operational hitches and the latter seems to be underutilized. There are a number of other sensible Chinese projects in the pipeline including the $750 million Colombo port development programme. Putting the good, the bad and the indifferent together, a fair estimate is that by 2015 the total outlay on all Chinese funded projects in Lanka will be $4 billion or Rs450 billion – numbers are rounded and reasonable exchange rates assumed.
A major issue concerning Chinese financing is the secrecy of the Government of Sri Lanka; how much is grant, how much loan, what interest rates, repayment terms and periods for different tranches, and what grace periods before repayment? In the old days, with World Bank, ADB and state-to-state loans everything was transparent, and there was no secrecy. Now nothing is transparent; either the terms are not favourable and the government is reluctant to admit it (the Chinese side won’t mind) or the usual 10% hanky panky is going on.
This leaves us guessing, so let’s guess. Say all the loans ($4 billion) are of 20 year repayment duration and the interest rate is 5% across the board. Simple mortgage-table calculation shows that annual repayment works out at $300 million (repayment made and interest calculated monthly). Full Story>>>
A major issue concerning Chinese financing is the secrecy of the Government of Sri Lanka; how much is grant, how much loan, what interest rates, repayment terms and periods for different tranches, and what grace periods before repayment? In the old days, with World Bank, ADB and state-to-state loans everything was transparent, and there was no secrecy. Now nothing is transparent; either the terms are not favourable and the government is reluctant to admit it (the Chinese side won’t mind) or the usual 10% hanky panky is going on.
This leaves us guessing, so let’s guess. Say all the loans ($4 billion) are of 20 year repayment duration and the interest rate is 5% across the board. Simple mortgage-table calculation shows that annual repayment works out at $300 million (repayment made and interest calculated monthly). Full Story>>>
