The Sri Lankan government has decided to keep away from expensive foreign loan-funded schemes in the future to avoid the external debt trap, but was bullish on the China-backed Colombo Port City project which, an official said, could rope in huge foreign direct investment. 

P B Jayasundera, secretary to the country’s president Gotabaya Rajapaksa, said the government intends to slow down the signing of such projects, The Sunday Times reported.

He said the solution to the situation was the formulation of a new model, focusing on raising local funds instead of obtaining foreign loans, to avoid the external debt trap.

Sri Lanka was also looking for more backing from the World Bank (WB) and the Asian Development Bank (ADB), Jayasundera said.

Pointing out that Sri Lanka’s infrastructure was reasonably good in comparison to most South and South-East Asian developing nations, he said the government must now desist from looking at very ambitious projects.

He added the aim was to refrain from getting into electronic and underground train projects or too many ambitious ventures, because the debt profile does not permit Sri Lanka to do so.

By August 2020, the country’s total outstanding external debt was USD 35.3 billion.

Of this, 47 percent is market borrowings; 13 percent is owed to the ADB; 10 percent each to Japan and China; nine percent to WB; two percent to India, and the rest to others.

Jayasundera said another policy was to prepare the country to attract foreign direct investment (FDI) more rapidly.

Pointing out that this is why the Port City law matters, he explained that the Port City legislation enables Sri Lanka to create a service center with an incentive structure that will encourage the FDIs on a much stronger footing.

CHEC Port City Colombo is a joint venture between the Sri Lankan government and China Harbour Engineering Company,

The 269-hectare Chinese-funded port city is being developed adjoining Colombo Port on reclaimed land from the Indian Ocean.

The Sri Lankan government hopes the project  could attract USD 15 billion in investments, and emerge as a leading business, retail, residential and tourist destination in South Asia.

Recently the Sri Lankan parliament passed the Colombo Port City Economic Commission Bill, creating a city-based special economic zone.

(SAM)