Sri Lanka borrows heavily from Iran, UK, and ADB

[TamilNet, Thursday, 29 November 2007, 03:24 GMT]
Sri Lanka this week borrowed $1.5 billion from Iran reportedly to fund infrastructure projects, including an expansion of the island's only oil refinery, press reports said Wednesday. The Asian Development Bank (ADB) is this week providing $65 million “to improve secondary and tertiary education” and on November 16th Colombo borrowed 50 million pounds ($104 million) from the British government “to reconstruct 222 bridges and build two fly-overs around Colombo.” The loans mark the latest in a flurry of fund raising by Sri Lanka including $500 million in 5-year sovereign bonds that Sri Lanka sold in October this year.

The funds Sri Lanka borrowed from Iran this week are said to be to finance housing, power and irrigation projects, Reuters reported.

But infrastructure work has often been a low priority in Sri Lanka because of the ongoing conflict, the agency pointed out.

Indeed, press reports say Colombo has used $181 million out of its $500 million debut sovereign bond it issued to settle outstanding government debts which had been borrowed for the same infrastructure projects which the dollar bond was ostensibly to fund.

The main opposition United National Party said the Rajapakse government had used the remaining $318 million to settle its day-to-day debts and not to fund capital spending.

"Government has utilised 13 billion rupees [$118 million] to settle the central bank debt and 22 billion rupees [$200 million] to settle state bank debt," said Ravi Karunanayaka, a member of parliament and former trade minister from UNP.

The $1.5 billion loan was signed in Tehran, where a President Rajapaksa this week held talks with his Iranian counterpart Mahmoud Ahmadinejad.

"We have signed eight MOU's. We will get a total of about $1.5 billion," said Chandrapala Liyanage, the president's media director was quoted by Reuters as saying.

He said $700 million would be used to expand the 50,000 barrels per day Sapugaskanda oil refinery while $450 million would be used for agricultural and irrigation projects.

The government plans to triple the refinery's output to 150,000 barrels per day.

Chandrapala did not elaborate or detail the terms of the credit, other than to say that the oil loan has to be repaid in 10 years.

Meanwhile the ADB’s assistance package unveiled this week will be provided in the form of a $65 million loan and a $15 million grant to support the Education for Knowledge Society Project. The Sri Lanka government is reportedly contributing $25.3 million to the project. And the purpose of the ADB loan? According to Ayako Inagaki, senior education specialist of ADB’s South Asia Department,

“[Sri Lanka’s] education system needs to adjust to the changing needs of the modern economy. The school system is currently oriented toward conventional university education and does not teach skills and attitudes relevant to labor market needs.”