Well executed private-public partnerships (commonly called PPPs) can be a great way to invest in muchneeded infrastructure and social projects. Sri Lanka needs $40 billion to build transport infrastructure, achieve universal electrification, improve digital access and provide safe drinking water & sanitation for all, estimates UK-headquartered Standard Chartered Bank. This is in keeping with its commitment to the United Nations Sustainable Development Goals, or SDGs. To put this funding requirement into perspective, Sri Lanka’s economic output or gross domestic product was worth $89 billion in 2018.
The state barely makes enough revenue to pay wages to a bloated public sector, interest payments on debt and transfers which includes pensions. Since graduating to upper middle-income status, concessionary funding is limited so the country has to borrow at commercial rates. Already overextended with debt reaching 83% of GDP in 2018, the recent economic package announced by the government was met with negative reviews by rating agencies Fitch and Moody’s.
This means that raising foreign capital over the next few years will be expensive. PPPs are now more compelling than ever before.
“The country has limited domestic resources due to relatively low levels of tax revenue. The government is looking at increasing public-private collaboration on infrastructure projects to help unlock the funding needed,” Standard Chartered said in a January 2020 report ‘Opportunity2030: The Standard Chartered SDG Investment Map’.
“With a large natural resource base, an educated population and a historically strong tourism industry, Sri Lanka has good foundations to make it an appealing prospect for investors.”
Sri Lanka has been growing steadily over the last decade and undergoing an impressive transformation, the bank notes, transitioning from a largely rural economy to a more urban economy with a strong manufacturing and services industry.
“Economic growth has resulted in a decline in poverty, and the country’s social indicators rank amongst the highest in South Asia,” it says.
While making considerable progress in terms of the SDGs, there are still significant gaps and the bank believes the private sector has considerable opportunities over the next 10 years. Sri Lanka ranks 85th in the world on the Logistics Performance Index and an investment of $13.1 billion is needed to make a significant improvement, of which, Standard Chartered estimates the private investment opportunity at $4.6 billion. Universal mobile telephone and internet coverage requires $6.8 billion for digital infrastructure with the private sector contribution at $4.1 billion. Digital accessibility is currently at 47%, according to Standard Chartered.
Only 2% of the population doesn’t have electricity but bridging this gap and also meeting the growing demand requires an investment of $16.3 billion between now and 2030. The private sector opportunity, particularly in renewable energy, is $7.3 billion. Access to safe drinking water and sanitation at 93% needs a further $2.1 billion, of which private investments can contribute $200 million. Attracting these investments from the private sector, however, is another matter.
“Historically, private-sector investment in Sri Lanka has been low compared to other Asian markets, due in part to unfavourable government policies and prolonged civil war,” the bank said.
The 30-year civil war ended a decade ago and private investments have flooded into infrastructure projects, particularly roads and telecommunications. Since 2015, however, ineffective governance exacerbated by a constitutional crisis and the shocking Easter Sunday terrorism attacks in 2019 have dampened private sector activity considerably. A stable government is expected at the April 2020 polls which could turn the tide.