Financial Times

Focus on resuming livelihoods
Aid to be sequenced with budget investment programme
With foreign donors already having committed some $4500 million for tsunami relief and reconstruction work, the government is now working on matching these commitments with its medium term public investment programme in the 2005 budget, Finance Ministry secretary Dr P.B. Jayasundera said.

The government is also working on "putting money in people's hands" and repairing infrastructure in order to help affected people resume their normal lives. Donors have pledged to repair fishery harbours and replace lost boats to revive the fisheries sector.

The estimated $1.8 billion public investment programme for rehabilitation and reconstruction work is expected to take over 3-4 years, Jayasundera told a news conference last week. This will be funded by tsunami aid pledges from Sri Lanka's donor partners without compromising their existing development commitments.

"We're matching these commitments with the 2005 budget medium term public investment programme," Jayasundera said. "That's why donors are coming with debt relief and grants - so we can keep domestic requirements to the minimum and ensure there are no balance of payments problems."

The money earmarked for debt repayment can be used for urgent relief work. Jayasundera said the government will ensure the rebuilding effort would be "inflation neutral" over the medium term. The priority is not to keep to numbers but ensure people's needs are met, he said.

Japan, Sri Lanka's main bilateral donor, has already given a grant of $81 for immediate rehabilitation work, which the finance ministry has begun to spend depending on claims by ministries, and India $27 million. The World Bank and ADB have already committed $ 100 million each for 2005 and other donors, private sector organisations and NGOs have also made substantial pledges, Jayasundera said.

He also said Sri Lanka is in the "front line" for US trade concessions which will be part of the US contribution to help tsunami-affected countries. Mano Tittawella, presidential advisor and chairman of the Task Force to Rebuild the Nation (TAFREN), said a key challenge faced by the government is to restore the livelihoods of those affected by the tsunami.

"We're aiming to restore small and medium industries as soon as possible," he told the news conference. "State banks have been spoken to and are to launch innovative schemes at reduced interest, with a moratorium on loan repayments, and give fresh capital to re-start businesses."

Private banks are to follow suit. The Central Bank has announced a Rs 5 billion special refinance soft loan scheme to help small and medium enterprises affected by the tsunami.

The money will be channelled through commercial banks, specialised banks and development banks at six percent interest to the borrower compared to the current prime lending rate of 10.6 percent.

Banks are now processing applications and disbursements are expected to start this week, Tittawella said. Jayasundera said that with so many people unemployed in the affected area some of them could be re-oriented to reconstruction activity.

Tittawella said government policy is to encourage the local construction industry but that foreign contractors would have to be called in to handle work that cannot be done by local firms. "There are physical constraints to what the local industry can do in the massive reconstruction effort. So it is sensible for us to invite foreigners to handle that component we can't do - we need to strike a fine balance."

The International Labour Organisation has indicated it may make $150 million available for livelihood regeneration activities, he said. Tittawella also said the 100 metre buffer zone aimed at protecting the coast has been gazetted. The government was now consulting the tourist and fisheries sectors and proposals were being drawn up to allow exceptions on a case-by-case basis in different sectors.

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