China Still In The Lead Despite Regime Change Construction of a building in Sri Lanka

Despite many speculations by various parties, China still seems to be leading the race in Sri Lanka’s donor funding framework. Being responsible for well over US$ 487 million disbursements in 2015, China is still maintaining its position as the leading funder for development and infrastructure development in Sri Lanka.

Many raised concerns over the former regime’s close association with the government of China, and now with the change of regime, many expected that the new government would not be able to continue the relationship that China had with the former government. However, that does not seem to be so as the most recent statistics by the Department of External Resources shows that China still sits comfortably at the top with a good margin among Sri Lanka’s donor funding entities.

Upon doing further research, it was revealed that even though during 2014 Sri Lanka received over US $ 513 million in donor funding from China, the funding in 2015 came amidst a change of regime and with a General Election in progress. Statistics show that a major portion of the funding released by China comes in as sequential funding for phases in several development projects.

China’s contribution comprised mainly of two standalone entities, first, China Development Bank, with a contribution of overUS $ 145 million in 2014 and US $ 192.7 million in 2015. The other,Import Export Bank of China, which in 2014 recorded a total disbursement of over US $ 366 million and in 2015 US $ 192.7 million, with a decline of just over US$ 193 million.

Meanwhile, the Government of India has made a contribution of US $ 142 million in 2014 while recording US $ 73 million in 2015 with a decline of US $ 69 million. On the other hand, the new government has been able to record a good response from the western and European regions of the world with HSBC Bank PLC (UK) making a contribution of over US $6.8 million within this short time period. Especially with the proposed Volkswagen factory in the pipeline and United National Party’s long term relationship with the two economic hubs, the Sri Lankan economy will have strong tailwinds from the Western and European entities.

Furthermore, in the year 2014, the total commitments made by The Asian Development Bank (ADB) were US$ 513 million. It concludes US$ 150 million for the power and energy sector, US$ 88 million for the water supply and sanitation sector, US$ 100 million for the skills and education sector and US$ 175 for roads and transport sector.  This particular ADB portfolio contains 33 loans and five grants. The total disbursement in 2014 was US $ 338 million.

Sri Lanka while being on the roads for development, reconciliation, rebuilding and economic growth, has been on the receiving end of many helpful gestures, especially from the two closest associates, China and India. Many development projects sprung up in and around Colombo.

Both parties have maintained equal interests in the country and both have made their presence known in the financial sector of Sri Lanka. In the case of Sri Lanka, a majority of donor funding is passed through the Asia Development Bank, which acts as a medium for the donor fund transactions.

The local body which directly deals with the donor funding income management and policy implementation is the Department of Resources, which falls under the Ministry of National Policies and Economic Affairs. This particular department is responsible for the management of the aforementioned funds and to ensure that the funds are being deployed appropriately for their purposes.

The Department of External Resources is responsible for mobilising and coordinating foreign development assistance to Sri Lanka. ERD facilitates achieving the development objectives highlighted in the Development Policy Statement articulated by the Sri Lankan government.

The chart below shows several key statistics of total disbursements made by the leading donors.

 

Assistance to the new regime

ADB has agreed to provide USD 453 million under the Multi – tranche Financing Facility (MFF) of ADB through three tranches for the implementation of this programme. The government’s contribution for the total programme is USD 108 million and the balance USD 114 million will be arranged through co-financing .The total investment cost of tranche 1 is USD 190 million and USD 150 million will be obtained from ADB as loans. The government will invest the balance USD 40 million.

The above investment comes in as the beginning of government’s plan to transfer Mahawali Water to North western, North Central and Northern Provinces under the Mahaweli Water Security Investment Program with the aim of maximizing the productivity of Mahaweli River Basin water resources. The total investment cost of this programme is around Rs 90 billion (USD 675 million) and the government has entered into two loan agreements to obtain financial assistance for tranche 1 of the above programme.

Three major investment projects; Upper Elahera Canal Project, North Western Province Canal Project, Minipe Left Bank Canal Rehabilitation Project will be implemented under the above investment programme. The construction of new and improved water conveyance and storage infrastructure under this programme will increase the productivity of agricultural lands in the above provinces.  25,000 farmer families under Upper Elahera Canal Project, 40,000 farmer families under North Western Province Canal Project and 15,000 farmer families under Minipe Left Bank Canal Rehabilitation Project will  benefit directly through this programme. In addition, the provision of safe drinking water for people live in those areas will help prevent Chronic Kidney Diseases.

In an interesting turn of events, the Government of Republic of Korea has agreed to provide two concessional loans for USD 78.685 million, which approximately stands at Rs.10,230 million to improve water supply facilities for the people in Kurunegala and Kegalle districts in line with the government’s target of providing safe drinking water for all citizens.  The Rapid spread of chronic kidney diseases has become a burning issue in Sri Lanka.

UN’sparticipation

When talking of Sri Lanka’s donor funding, a factor that cannot be missed is the involvement of the United Nations (UN). Since the three decade long war, the United Nations had maintained a solid interest in developing the infrastructure of the country. Since the conclusion of the war, the concerns of the UN has been shifted towards developing the living conditions of the people of the Northern Province.

After being battered by the three-decade long war, the people of the North have been facing many problems, starting from lack of proper sanitation to lack of drinking water. The UN has been mobilising many funds in collaboration with various Non Government Organizations in order to improve the living conditions of the people of the Northern Part of the country.

UN Office for the Coordination of Humanitarian Assistance (OCHA) is the sector of the UN which keeps records of the donor funding situation in the country and the organisation presents regular reports on the donor funding updates.

According to the UN Financial Tracking Service (FTS), a global, real-time database of the OCHA that records all reported international humanitarian aid (including that of NGOs, the Red Cross/Red Crescent Movement, bilateral aid, in-kind aid, and private donations), significant gaps exist in the areas of shelter, livelihoods and demining.

Some areas have not received any funding at all. Of the $5 million requested for water and sanitation (WASH), and $29 million requested for mine action, donors have yet to come forward, while a request of almost $40 million for shelter and permanent housing assistance faces a shortfall of more than 70 percent.

Also, the UN’s World Food Programme (WFP) has agreed to extend the food aid assistance through the Country Programme Action Plan 2016 – 2017. The objective of this two year Country Programme Action Plan is to improve food and nutrition security, and build resilience of vulnerable communities to climate shocks. The total cost of the Country Programme Action Plan 2016 – 2017 is US $ 19,705,165.

Accordingly, WFP will extend the support using in-kind and cash-based transfer modalities to approximately 274,000 beneficiaries for school meals, nutrition support to children under-five and pregnant and lactating women, resilience building for disaster affected community in addition to capacity development for policy development. This programme will be executed by the Ministry of National Policies and Economic Affairs and implemented through the Presidential Secretariat, Ministry of Health, Nutrition and Indigenous Medicine, Ministry of Education, Ministry of Environment, relevant Ministries of the Northern Provincial Council and the respective District Secretariats.

 

China and Japan

In addition to the above, in the recent times the government has developed more ties with the Republic of China and Japan. Taking a step from the traditional trade ties the government has forged partnerships with the two governments.

Several discussions were held between the three parties and with Prime Minister Ranil Wickremesinghe’s visit to Japan, the government of Japan is expected to aid the development process of Sri Lanka and alongside that, the China government will continue investing in the opportunities made available through the local development projects.

Highly placed sources told The Sunday Leader that the new government’s foreign policy will be the key in ‘being on the good side’ of the main three parties India, China and Japan. They added that the government will have a good challenge to maintain a good relationship between China and India together due to the former regime’s relationship with the China government. However, they expressed confidence that the new government would be able to harness the benefits from both parties while going ahead with the development process.

Meanwhile, the Government of Japan in 2014 has made a gesture of overUS $ 256 million as opposed to China’s massive US $ 513 million, however, the above figures are expected to rise with the country’s newly forged partnership with the Japanese government.

 

Govt Response

Responding to the comments made regarding the new government’s development strategy, Minister of Finance Ravi Karunanayake said that the new government has not halted any development projects. He said that the new government will pursue the development agendas only after determining the possible outcome of it.

However, Minister Karunanayake said that because the government is concentrating on issues such as hastening up the reconciliation process and bringing in vital foreign investments to the country.

The Minister also stated that the government does not intend to pursue any ventures that will put the government at a loss. He said that the main focus will anyway be given to bringing in Foreign Direct Investments and increasing the revenue generation through foreign investments. Therefore the physicality of the development process will be a bit delayed.

 

Disadvantages

A donor-advised fund has some disadvantages compared to a private foundation, and some advantages. Both can accept donations of unusual or illiquid assets, but a donor advised fund has higher deductions for these gifts (depending on the gift). In addition, the founders or board of a private foundation have complete control over where its giving goes within broad legal bounds. In a donor-advised fund, the donor only advises the sponsoring organisation where the money should go. While rare, a sponsoring organisation could conceivably ignore the donor’s intent.

In addition, most donor-advised funds can only give to IRS certified organisations or their foreign equivalents. This rules out, for example, most kinds of donations to individuals, and scholarships—both things a private foundation can do more easily. Donor-advised funds do reap a significant cost advantage, but may also have one more drawback limited lifetime, although this varies depending on the sponsor.

Because a public charity houses the fund, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Furthermore, donors avoid the cost of establishing and administering a private foundation, including staffing and legal fees. The donor receives the maximum tax deduction at the time they donate to their account, and the foundation that administers the fund gains full control over the contribution, granting the donor advisory status. As such, the administrating fund is not legally bound to the donor, but makes grants to other public charities on the donor’s recommendation. Most foundations that offer donor-advised funds only make grants from these funds to other public charities, and usually perform due diligence to verify the grantee’s tax-exempt status.