“Well-designed infrastructure investments can raise economic growth”
Speech delivered by Dr Sarath Amunugama , Senior Minister of
International Monetary Cooperation and Deputy Minister of Finance and
Planning at the SAARC Finance Minister’s 7th Annual meeting held in New
Delhi in India recently.
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Senior Minister for International
Monetary Co-operation &
Deputy Minister of Finance
Dr. Sarath Aumnugama |
“On behalf of the Government of Sri Lanka, It is my pleasure to be
here and address this seventh informal meeting of the SAARC Finance
Ministers. Today we are discussing “Infrastructure Financing in South
Asia” which is a very important topic for all South Asian countries.
This discussion comes at a significant time, as we all are working hard
to reduce poverty, combat diseases and improve the well being of
millions of our people in line with the targets of The Millennium
Development Goals (MDGs).
“Well-designed infrastructure investments can raise economic growth,
productivity, and land values, while also providing significant positive
spillovers to areas such as economic development, energy efficiency,
public health, and manufacturing. However, inadequate infrastructure has
been a serious bottleneck for economic development of all South Asian
countries. In the meantime, the amount of resources needed to finance
urban infrastructure in our countries is huge.
“In the coming years, SAARC Countries will have to tackle a huge
demand for infrastructure in their burgeoning cities. According to the
projections, Asia’s cities, for example, have to accommodate more than
two billion additional people over the next 20 years. All these people
will need water, sanitation, healthcare, education, transportation,
housing and power. Negative impacts of rapid urbanization are visible in
most of our countries and in some parts of the South Asian region
urbanization has become synonymous with slum growth, posing additional
challenges for the cities’ social fabric.
“Economic infrastructure in most of South Asian countries is mainly
financed from national budgets, which are limited. Obtaining foreign
financing from development partners could ease the burden on national
budgets to a certain extent However, each country has its own limit to
foreign borrowings. On the other hand, lending practices in relation to
development partners involves a lengthy process which is time consuming
in terms of project preparation and procurement. Traditional funding
methods limit the flexibility and cost-effectiveness of infrastructure
financing.
“Although decentralization of public services has generally improved
the service delivery levels in some of our countries, increased
responsibilities are not always in line with the capacities and
financial means of many local governments. In many cases local
governments are not well-prepared to meet the challenges they face in
providing the services and infrastructure required due to different
reasons. The main reasons include (a) overall lack of adequate funding,
as a result of insufficient revenues from local taxes and fees and
limited access to loans and other forms of debt financing; (b) shortage
of qualified staff and lack of technical and administrative capacities
to plan, implement, operate and maintain urban infrastructure facilities
and (c) lack of coordination between different line agencies.
“Therefore, providing urban services and infrastructure will require
a blend of finance, technical and planning capacities, and a close
cooperation between the public sector, development partners and the
private sector.
“Increased private sector participation in financing and operating
local urban infrastructure facilities is now been widely recognized.
Studies have found evidence of large private sector productivity gains
from public infrastructure investments, in many cases with higher
returns than private capital investment. However, not every
infrastructure project is worth the investment. Investing wisely in
infrastructure is critically important, as is facilitating private
financing for public infrastructure.
“Although there is a growing need for private sector financing,
insufficient legal and administrative frameworks for private sector
participation such as insufficient investment laws, tariff laws and
policies, in-transparent and unreliable planning and procurement
processes, and insufficient accounting standards of local governments
often hinder the involvement of the private sector in infrastructure
financing in most of the countries in our region.
“Therefore, we need to find ways to overcome these issues. One way is
entering in to partnerships between the government and private sector
investors which will enable the government to subsidize by contributing
to the concessionaire towards recovery costs. This will ensure the
recovery of the projected income over the concession period before
transferring the assets (on BOT projects) to the government and this
will create a ‘win/win’ situation for all.
“Sri Lanka has embarked on a big infrastructure development programme
for which we need funds from different sources like equity,
private-public sector partnerships and bond issues. Recognizing the need
for exploring new funding sources to finance the long-term strategic
infrastructure development projects, the Government of Sri Lanka is now
trying new investment models.
“Registration of an Investment Fund Account (IFA) in all banking and
financial institutions was proposed in the Budget Proposals in 2011 for
this purpose. Accordingly, all banking and financial institutions were
required to transfer a portion of their tax savings to these accounts
and the banks are required to adopt low interest rates and longer term
maturity for lending the funds accumulated in the IFA with the objective
of using the tax savings more productively for economic development.
Investment Fund accounts established in the commercial banks are now
providing better access to development financing for State Owned
Business Enterprises, Public Corporations and the private sector,
allowing the government to divert more resources for other priority
development projects without burdening the national budget. The
Government encourages local banking and financial institutions to
contribute more to the national development programme of the government
in a dynamic way.
“While recognizing that State Owned Enterprises have a major role in
infrastructure development, these Enterprises are encouraged to borrow
directly from foreign and domestic sources. In the meantime, the
Strategic State Owned Business Enterprises (SSOBE) are expected to
enhance their revenue generation activities while minimizing the
dependence on government funds for investment in infrastructure
development.
“Let me take a few minutes to brief you about the macro economic
situation in Sri Lanka also. Despite a difficult global and domestic
environment, the Sri Lankan economy grew by 6.4 percent in 2012
following two consecutive years of robust growth of over 8 percent.The
moderation of the growth in 2012 is due the weakening global economy,
which has adversely affected the demand for our exports”.
Sri Lanka has taken steps to reorient its economic development policy
framework to suite the requirements of a middle income economy. The main
objective of the Government budget for 2013 is to facilitate
transformation of Sri Lanka towards a poverty free upper middle income
economy.
The Development Policy Framework of the Government envisages a well
developed economic infrastructure network covering the entire country.
This needs significant private investment with an improved investment
climate for the private sector.
Considerable private investment has already taken place in the areas
of ports, power and energy, roads, telecommunication, tourism,
agriculture and marketing. In the meantime, a substantial amount of
government investment is also necessary to fill the financing gap. The
current investment level of the country is to be increased to about 33
percent of GDP with sustained commitment of public investment of 6-7
percent of GDP to support private investment.
The country is now on the path to peace, reconciliation and
development based on the Economic Policy Framework of the Government. In
2012, we have concluded Provincial Council Elections in 3 distinctly
different provinces that represents one fourth of the population. It is
an encouragement to the Government is encouraged that people from all
communities have placed their overwhelming confidence in Government
development programmes. Upholding our commitment to developing the
Northern Province in par with other Provinces, Government has
implemented many development initiatives. People have returned to normal
family living. Access to electricity, education, water and health
facilities is improving rapidly.
Banking and financial institutions have expanded and there is a
strong enthusiasm in people from the Northern Province to find economic
prosperity in the newly found environment. Let me conclude by
emphasizing the need for well a developed infrastructure network for
economic growth and improved living standards of our people.
Therefore, it is high time that member countries revisit their
economic policies to find appropriate strategies to finance the
strategic infrastructure development programmes which have been left
unattended for a lone time.
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