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Despite signs of economic crisis, Govt spent huge amounts on roads and highways last year
View(s):By Namini Wijedasa
Despite a sharp decline in government revenue and “high and rigid recurrent expenditure”, the Government last year continued to spend heavily on certain sectors including roads and highways, the Finance Ministry’s newly-released annual report reveals.
Of the total foreign financing disbursements received by Sri Lanka between January 1 and December 31 last year, the bulk was for balance of payments support–nearly 33.5 percent– followed by roads and bridges at 16.8 percent. Health and social welfare was third at a mere 9.9 percent.
The report, published on the Finance Ministry’s website, has traced in detail the dismal fall of the economy. Among the reasons listed are weak revenue collection, high debt and persistent current account deficits in the balance of payments, limited economic competitiveness and long-standing structural issues. The COVID-19 pandemic and the Russia-Ukraine conflict are among global contributory factors.
The Government’s cash flow “deteriorated significantly” because of revenue shortfalls amidst rising recurrent expenditure pressures. This compelled it to rely on inflationary domestic financing. Public debt was at “an unsustainable level” and led to a temporary debt standstill for the repayment of selected foreign debt.
In the 12 months of last year, however, a total of US$ 2.41bn foreign financing disbursements were received. Of this, US$ 2.39bn was loans while just US$ 17.3mn was grants.
“The majority of the disbursements were made on loan agreements signed with China, which is almost 33.5 percent, followed by ADB (25.5 percent) and WB (18 percent), respectively,” the report states. “Apart from the disbursements made for development projects and programs, the Government has obtained USD 809.1 million from China Development Bank (CDB) in 2021.”
Amidst collapsing finances, the Government still launched a 100,000 km road development programme and an expressway network expansion programme in 2021 with the completion of around 41 km of expressways, it reveals. Several other projects were already at various stages of completion.
Construction started, too, on the first phase of the Ruwanpura expressway (Kahathuduwa to Ingiriya); new flyovers at Gatambe, Kohuwala; the railway line at Uththarananada Mawatha near Slave Island and Chiththampalam A Gardiner Mawatha to Baladaksha Mawatha. Another initiative called the “’Inclusive Connectivity and Development Project” to complement the 100,000km road development drive also kicked off last year.
In all, the Government spent Rs 213bn on road sector development in 2021, down from Rs 230bn in 2020–the year it became starkly evident to economists that a dire crisis was looming.
Meanwhile, as at December 31, 2021, the total undisbursed loan balance of foreign financing available from already committed loans to be used in the next three to five years was estimated at US$ 7.94bn.
The majority of this committed undisbursed balance remains with recent projects funded by the Asian Development Bank (23 percent), World Bank (19 percent), China (17.2 percent) and Japan (15.5 per cent).
And nearly 24 percent of the foreign financing is expected to be disbursed during the next two to five years for the road and bridges sector while a considerable amount is to be disbursed mainly for the sectors such as water supply and sanitation and transport.
During the same 12-month period, the Government had made arrangements to mobilize foreign financing of USS 2.4bn by signing 26 agreements with foreign development partners and lending agencies for its “public investment programme”, the report states.
This included US$1.6mn as official development assistance (ODA) loans and US$ 39.3mn as ODA grants and technical assistance. Another USD 808.8 million was raised through term loan facilities from the China Development Bank.
“The overall commitment during 2021 was relatively low compared with recent years since the Government has embarked on new strategies to lessen the country’s debt burden in the medium term by reducing foreign exposure to government financing,” the report asserts.
Separately, the total collection of levies and dividends on State-owned enterprises rose to Rs 30.6bn when compared with Rs 17.6bn in 2020. But the Government still supported the corporation and public institutions, including the Road Development Authority, in order for them to continue operations.
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