External finance essential for development - Dr Amunugama

The recent trends in foreign aid have seen a shift from traditional practices. Emerging economies such as China, the Middle-East and India have begun to play an increasingly important role in the overseas development assistance (ODA).

More liberal policies and market forces will facilitate a conducive environment for ODA to flow into countries, Deputy Finance and Planning Minister Dr. Sarath Amunugama said.

The rapid economic growth could be fuelled by infrastructure development and developing countries need to emphasise more on improving infrastructure facilities.

An international conference on policy priorities for aid reform in South Asia organized by the Institute of Policy Studies and Friedrich Ebert Stiftung Colombo was held yesterday.

Dr. Amunugama said it is important for countries to take stock of the role of external finance in the development process and clearly identify its niche in long term planning. "The availability of external finance from multilateral lenders will decline as per capita incomes rise in South Asia," he said.

It is essential to identify alternative sources of finance and managing domestic resources more effectively to ensure less reliance on external finance in the longer run. The management of this transition from high levels of foreign assistance to lower levels is vital for the medium term economic development of South Asian countries.

"The present donor profile is not encouraging. The aid architecture has transformed today and commercial credit has become a significant component. It fills the gap between multilateral donor assistance and requirement of the country.

However, commercial credit is necessary because aid receiving countries cannot sustain only from concessionary assistance," Dr. Amunugama said.

The Institute of Policy Studies Executive Director Dr. Saman Kelegama said "the countries must change the way in which aid is viewed. Aid should be thought of as a means to an end as opposed to an end in itself. Such thinking demands that we establish what the end is and how we arrive there," Dr. Kelegama said.

"One important facet of this reform is for countries to consider and actively support alternative forms of finance for development processes, such as focusing on domestic resource mobilization and commercial markets," he said. SJ