Budget preview

Disbursement of foreign aid to be streamlined

AID: The Government relies on foreign aid to implement various development projects as highlighted in its budget proposals. Here is a brief account of the foreign aid commitments and how the Government plans to disburse them.

The total recorded foreign aid disbursement by September 30, 2006 amounted to US $ 697 million on account of project loans, program loans and grants, which is 60.2 per cent of the amount forecast at the beginning of 2006 amounting to US $ 1,157 million.

Of the total disbursement, project loans accounted for US $ 480 million (68.8 per cent), programme loans accounted for US $ 37 million (5.3 per cent) and grants accounted for US $ 180 million (25.8 per cent).

The Government of Japan, the World Bank and the Asian Development Bank (ADB) contributed US $ 444.9 million or 63.8 per cent of the total disbursements. (Government of Japan - US $ 198.8 mn, Asian Development Bank - US $ 138.0 mn and the World Bank US $ 108.1 mn).

New aid commitments

The total aid commitments made by donors to Sri Lanka, by signing necessary loan/grant agreements during the period from January to end September 2006 amounted to US $ 887 million. These commitments were made in the form of project loans and grants.

One of the landmark agreements concluded was the Puttalam Coal Power project to be implemented with assistance from the Government of China amounting to US $ 455 million.

Other major infrastructure projects include the Galle Port Development Project (US $ 124 mn by the JBIC) and the Road Sector Assistance Project (US $ 98.7 mn by the World Bank).

New projects

Negotiations have commenced with the ADB to provide assistance amounting to US $ 300 million for Colombo Port Expansion which would provide for dredging and breakwater construction sufficient to accommodate three terminals to be constructed in stages. Negotiations have also been concluded to obtain US $ 150 mn. for National Highways Development from the ADB.

In order to reduce the risk of heavy reliance on thermal power, the Government also initiated action to obtain financial assistance from the Government of Japan and major Exim Banks to construct two dual fuel combined cycle power plants at Kerawalapitiya, one based on heavy

fuel and another on light fuel but with facility to convert to LNG option at a future stage.

These projects are expected to provide additional 600 MW to the national grid after an implementation period of about four years.

External debt

As at August 31, 2006, total debt service payment was US $ 321.3 mn which includes principal repayments of US $ 217.3 mn.

The estimated total debt repayment for the year 2006 is about US $ 494.4 million. The Government's total debt stock as at 31st August 2006 is US $ 10,084.9 million as compared to US $ 9,491.2 million as at end 2005.

Medium term plan

It is expected to mobilise US $ 5 bn. over the next three years and a larger part of these funds are earmarked for major infrastructure projects in the areas of power generation and distribution, roads, port development and the supply of water.