Annual Report 2008 - Ministry of Finance and Planning

5. Foreign Financing of the Budget
198
An Overview
In the context of the challenges posed by the global
economic crisis and in line with the development vision of
the Government, “Mahinda Chintana: Vision for a New Sri
Lanka - A Ten Year Horizon Development Framework 2006-
2016”, a stronger emphasis was placed on improving the
effectiveness of foreign aid utilization and making maximum
possible use of foreign financing.
Accordingly, foreign aid commitments as well as
disbursements reached recorded highest levels in 2008.
The total foreign financing commitments made by bilateral
donors, multilateral agencies and the export credit agencies
in 2008 was US$ 2,067 million. The previous highest level of
commitments of US$ 1,740 million was registered in 2005
and that was in the aftermath of the Tsunami devastation.
The disbursements reached US$ 1,226 million in 2008. The
previous highest level of disbursements i.e US$ 1,146 million
was in 2006. The figures indicated a 23.5 percent rise in aid
commitments and 8.7 percent increase in aid disbursements
compared with the previous year.
Reflecting the trust on infrastructure development, the
proportion for infrastructure development in the total
commitments has increased to 77 percent in 2008 from 70
percent in 2007. Given the Government strong commitment
to fill the infrastructure gap in the country and mobilize
foreign resources with that aim in the medium-term
development strategy the share of the infrastructure
development component has been increasing consecutively
during the last three years. Furthermore, this reflects the
Government’s firm commitment on bringing the benefits
of development to rural and underprivileged areas of the
country in order to minimize the regional disparities. The
Country Partnership Strategies for the period 2009-2011
with the World Bank and ADB were finalized with a funding
envelope of US$ 900 million from the World Bank and US$ 820
million from the ADB in support of the Government mediumterm
development programme. Sri Lanka also finalized its
aid programme with UN agencies under the United Nations
Development Framework for the period 2008 - 2012 However,
the highest increase in the new commitments as well as in
disbursement of funds has been in the form of export credits.
Commitments from export credit agencies have increased
by 48 percent while disbursement of funds from them has
increased by 94 percent over the previous year. With Iran
emerging as a new development partner in addition to the
strong relationship in trade, the Iranian Government made
its first loan facility for the Uma Oya Hydro Electric and
Irrigation Project amounting to US$ 450 million through the
Export Development Bank. Mixing the development funding
facilities with this type of funding is becoming a new reality
given that Sri Lanka is an emerging middle income country.
Efforts have been made to use possible other sources of
financing such as attracting new donors and mobilizing
export credits for key infrastructure projects.
The Government borrowings from the capital market sources
were limited to the US$ 150 million loan obtained from the
Standard Chartered Bank given the tight liquidity conditions
in the international financial markets in the context of the
global financial crisis.
The cumulative undisbursed balance of the commitments
as at end of December 2008 stood at US $ 5.7 billion. Based
on the existing portfolio and the expected foreign financing
of US$ 4.6 billion for the period 2009-2010, the total foreign
financing available for utilization in the medium term would
be around US$ 10.3 billion.
Foreign Financing Commitments
The total foreign financing commitments made by the
development partners and the credit agencies in 2008 was
US$ 2,067 million of which project loans accounted for US$
1,831 million and grants accounted for US$ 236 million.
The list of loan/grant agreement signed in 2008 is given in
Annex 5-1.
The commitment made in 2008 is significant as this is
the highest commitment reported in the history. Total
commitment increased by US$ 393 million or 23.5 percent
compared to the commitment of the year 2007. Export
credits increased by US $ 262 million or 48 percent.
Commitments from bilateral donors have increased to US$
761 million in 2008 from US$ 553 million in 2007. This is an
increase of US$ 209 million or 12 percent compared to the
Ministry of Finance and Planning Sri Lanka
Annual Report 2008