China leads Sri Lanka foreign loans as 2020 projects disrupted by Covid-19

Sri Lanka’s foreign project loans disbursements fell to 369 million US dollars up to April 2020 from 539 million dollar from a year earlier, amid a Coronavirus pandemic while China led with a 500 million US dollar budget support loan.

Total disbursements on China projects were 68. 4 million US dollars outside the 500 million dollar budget support loan, followed by the Asian Development Bank with 94.9 million US dollars (last year 400 million), World Bank 77.5 million dollars (last year 153.2 million US dollars) and Japan 66.4 million US dollars (154.3 million dollars last year).

Many Chinese projects were halted or slowed as a Coronavirus epidemic in Wuhan stopped Chinese workers and executive who went home for New Year from returning.

Coronavirus lock downs followed in the last week of March.

“The performance of mobilizing foreign financing during the first quarter was greatly affected by the COVID-19 pandemic,” a Finance Ministry report said.

Sri Lanka however has successfully contained the Coronavirus pandemic since then.

But a bout of money printing (monetary stimulus) which triggered forex shortages, compounded by a ‘fiscal stimulus’ has de-stabilized the external sector, leading to a currency fall and credit downgrade.

Private credit and consumption has since collapsed, leading to a stabilization of the external sector but Nixon shock style severe import controls not seen since the 1970s when the Bretton Woods system collapsed has been imposed.

Analysts have noted that there is classical economic illiteracy in the island and a strong belief in Mercantilist doctrine.

Up to April 2020 Sri Lanka has signed three loan agreements including 500 million US dollars from the China Development Bank and 128.6 million US dollars given by the World Bank for Covid-19 work.

Last year Sri Lanka signed up 2.4 billion US dollars of new projects including 989 million US dollars from the Exim Bank of China for the Central Expressway.

China has not given Sri Lanka a debt moratorium in 2020 though a moratorium was requested from all bi-lateral donors.

But China gave a 500 million US dollar budget support loan which can be used to repay installments of loans falling due. Another 800 million US dollars is expected in the second half of 2020.

The committed undisbursed balance of foreign financing was 9.1 billion US dollars which could be utilized in the next 3 to 5 years.

“China has the majority of the balance to be disbursed followed by the Asian Development Bank, Japan and the World Bank, respectively,” the Finance Ministry said.

By end April total foreign loans of the central government were 35.1 billion US dollars.

Up to April 1,114 million US dollars had been paid out of which 543.1 million US dollars was principle and 570.9 million US dollars was interest.

The number does not include foreign held rupee bonds which had fallen to about 20 billion rupees, or loans of state enterprises. (Courtesy Economynext)