Serious repercussions for Sri Lanka from MCC grant withdrawal
View(s):They said that investors may even pull back from investing in the money markets since the Sri Lanka government failed to respond to the MCC grant. The MCC board on Thursday decided to discontinue the proposed grant. The government has cited concerns over provisions of national security in the ‘free money’ deal.
“There would be repercussions. Unfortunately this was free money and not a loan,” said renowned economist W.A. Wijewardene, adding that it would trigger ‘trust in the government’ issues among investors.
He said about a month ago, foreign investments in Treasury bills and bonds declined sharply to Rs.7 billion from Rs.14 billion despite the Central Bank agreeing to guarantee the exchange risk since “investors have no faith in the government.”
“We should have renegotiated the terms instead of completely discarding the proposal,” he said adding that one proposal was the digitization of land titles which was a long overdue measure of immense benefit to Sri Lanka.
Dr. Wijewardene said Sri Lanka has lost an important opportunity by the withdrawal of this agreement and blamed the previous Ranil-Sirisena administration for failing to convince the people through a proper communication strategy on the MCC grant. It was in 2006 that President Mahinda Rajapaksa and Central Bank Governor Ajit Nivard Cabraal sought to obtain a similar MCC grant but was turned down by US authorities due to alleged human rights abuses.
“This is a not good signal for Sri Lanka as the new Biden administration in the US is keen on open trade and creating new friends,” he said.
“The Rs. 89 billion approved for Sri Lanka will (now) be made available to other eligible partner countries in need of grant funding to pursue their economic development priorities, reduce poverty, and grow their economies,” the US Embassy said in a statement on Thursday in announcing the MCC Board decision.
“Country ownership, transparency, and accountability for grant results are fundamental to MCC’s development model. MCC has partnered with nearly 30 countries worldwide on 38 grant agreements, totaling nearly $13.5 billion. These grants have lifted millions of people from poverty by catalyzing local and domestic investment,” the embassy said.
However it said that the US remains a friend and partner to Sri Lanka and will continue to assist Sri Lanka in responding to COVID and building its economy.