Himalayan News Service

Manila, March 8:

ADB is planning the second phase of a programme to promote private sector development in Sri Lanka, through a technical assistance (TA) grant approved for $800,000.

The first part of the programme, which comprised two loans amounting to $100 million approved in 2000, focused on creating an environment suitable for private sector development. However, the future growth of the private sector requires follow-on initiatives.

One such area is the limited access to medium and long-term financing and a limited corporate bond market. Not only does limited access to medium and long-term financing have a negative effect on corporations like money could be used to build a factory and generate more employment, but also negatively impacts individuals and the economic growth of the entire nation.

'A person buying a house often arranges a long term mortgage to finance the purchase price. If there is limited availability to long term financing, a mortgage company will charge a high interest rate for the loan,' says Barbara Ericsson, an ADB principal financial sector specialist, 'If the interest rate is too high, there will be less demand for buying and building new houses. If fewer houses are built, there will be less construction, higher unemployment, which will result in lower demand for other goods and services, and low economic growth for the country. The TA will recommend needed policy changes to improve the financial sector and stimulate private sector growth in Sri Lanka.'

Also, due to the fiscal burden resulting from the budget support to state-owned enterprises (SOEs), the process of privatisation must be accelerated and the inefficient operations of SOEs addressed.

'Part of the privatisation process being conducted by the Lankan government has been slowed down due to a need to restructure some of the SOEs to become more competitive and profitable,' Ericsson adds, 'Restructuring often involves training employees in new techniques to produce quality goods at reasonable prices. However, restructuring usually requires some form of investment.'