Lack of funds hit highway projects

The government is scrambling for funds to resume construction work on highways and roads due to the previous regime failing to settle dues to contractors and not paying for lands acquired for road projects. The new government needs around Rs. 15 billion urgently to fund these projects.

This was revealed at a meeting to ascertain the government’s expenditure projections attended by Ministers of Finance, Highways, Investment Promotion and Higher Eduction recently. The outstanding payment for land acquisition alone is around Rs. 44 billion. The government needs Rs. 12 billion as counterpart funds to complete road reconstruction work, according to the Ministry of Policy Planning and Economic Affairs.

The government will go ahead with the projects although it is negotiating the prices. Cash for payments of bills in hand and to complete incomplete projects were to be met through the Treasury Bond to be issued this month, the Ministry said. The last bond issue was opened on February 27 to offer Rs. 1 billion.

Thirty-six offers were received amounting to Rs. 20 billion in bids which enabled the Central Bank to accept Rs. 10 billion to raise funds. Following the decision to reduce interest rates and yields on Sri Lankan Government Bonds by the then Central Bank management last year the yield on the government’s 10-year bond dropped from 9.23 percent in July 2014 to 7.88 percent in January this year.

The yield on the 30-year bond too dropped from 11.75 percent to 11.73 percent in February this year.

Moreover, foreign exchange reserves also dropped following the

lowering of interest rates in September last year. Foreign reserves dropped from US$ 9.2 billion mid last year to US$ 7 billion in February 2015. The exchange rate too which had been under pressure depreciated by 1.2 percent early this year. The Central Bank scrapped the three-day rule restriction that enabled banks to deposit their funds in the Central Bank at a 6.5 base rate on three days a month and get five percent on all other days, a practice carried out in September last year.

The government has decided that as far as possible all bonds should be through public auction. Private placement at pre-agreed rates favoured the investors, the Ministry said.

It was revealed that the intersection of finance and business were controlled by a few who were closely associated with the Rajapaksa regime.

The confidants of the regime had vital information on transactions which were used to make undue profits. They were pre-arranged transactions with State-owned institutions instead of public auctions opened to stockbrokers and investors. Many stakeholders were affected due to manipulations in the stock market. The government is inquiring into those malpractice and the alleged malpractices at the Public Debt Department during bond auctions and private placements.