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ADB lending to go up 50 percent:

Confidence of international community very high

July 23 (Bloomberg) The Asian Development Bank plans to increase its lending to Sri Lanka by 50 percent to help rebuild it after ending its 26-year conflict.

The Manila-based lender plans to raise Sri Lanka’s annual allocation to $300 million in 2010 from $200 million, to fund road, power and water and sanitation projects in the island’s north and east, among others, said Narhari Rao, the ADB’s South Asia lead economist.

“Sri Lanka is in an extremely favourable situation and the overall confidence of the international community is much higher,” Rao said in an interview in Colombo. “We are trying to push ahead on various fronts since we feel it’s just the right time to give resources to Sri Lanka.”

President Mahinda Rajapaksa is seeking aid and investments to help turn the East and North into productive parts of the economy after defeating the LTTE.

The International Monetary Fund this week said it reached a staff-level agreement for a $2.5 billion standby loan for Sri Lanka to rebuild its economy and replenish international reserves.

Rao said the ADB’s Board may also this year approve a $300 million “special facility” to Sri Lanka to help it better face the global recession and set up a $20 million fund in 2011 to support public-private partnerships.

The Central Bank of Sri Lanka this month raised its 2009 growth forecast for Sri Lanka to as much as 4.5 percent from an earlier estimate of 2.5 percent. Gross domestic product expanded 1.5 percent in the first quarter from a year earlier, the slowest pace in at least six years. The nation’s reserves declined by more than more half in the six months from September to as little as $1.4 billion as the global recession hurt export earnings, prompting Sri Lanka to start talks with the IMF in March. Foreign reserves stood at $1.705 billion as of July 20, according to the Central Bank.

Rao said Sri Lanka could increase its rate of economic growth to at least 7 percent in the next year or two, “contingent on the global scenario.”

He said the nation could contain its budget deficit to 7 percent of GDP in 2009, as forecast by the Central Bank, and narrow the gap to a “more sustainable” level of 5 percent as the economy picks up.

“With the fiscal deficit brought under control and foreign reserves being built up, there’s absolutely no reason Sri Lanka can’t attract more investment and the private sector gain more access to funds,” Rao said.


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