SL’s “Special” Executive Experience in Funding Poorly Executed Infrastructure Projects : Verité Business

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  • A study by Verité Research reveals how SL mismanaged alternative financing from emerging economies such as China and how this credit became a massive burden for people

The so-called “special” framework introduced by the government in 2010 to facilitate access to export credits provided by emerging economies such as China has not benefited the Sri Lankan economy as expected, largely due to flaws in the implementation procedures.

The framework was put in place with laudable intention, however, several weaknesses in the design of the special framework created loopholes that could be exploited or misused by parties involved in the decision-making process, a study by the economic think tank based in Colombo. Verity Research tank revealed.
During the period 2010-2016, Sri Lanka deployed an “experiment” with a special framework. In a context of declining access to concessional financing from traditional multilateral and bilateral sources, this alternative financing was intended to finance the government’s ambitious infrastructure development programme.

During this period, 26 public sector projects were approved by the Standing Review Committee appointed by the Cabinet (SCARC) using the provisions of the special framework. These included 12 Chinese-funded projects, which accounted for 92% of the total value of all publicly funded projects approved by SCARC.
Alternative sources of financing such as these were essential and important means of bridging the financing gap created by the gradual decline in concessional financing from other traditional multilateral and bilateral sources, due to Sri Lanka’s transition to of lower-middle-income countries in 2004, noted Verité.

The study underlined the negative implications brought about by this particular framework, which requires reviewing and re-conceptualizing these procedures so that the same errors are not repeated over and over again.

According to the think tank, the first of these weaknesses of the special framework was the inclusion of a vaguely defined list of reasons justifying deviations from the established procurement process.
The second was the complete disregard for the cost of finance and the grant element, which is crucial in assessing the concessionality of the loan, in order to determine the adequacy of the finance.

The third was the lenient decision-making process that allowed authorities to move forward with the USP even if only one of the vaguely defined reasons listed was met.
“The rigor of the evaluation process was further compromised by the discretion given to SCARC to decide whether unsolicited proposals should be evaluated by an independent project and technical evaluation committee.

Overall, the high level of discretion conferred on officials involved in the decision-making process made weaknesses in the framework highly vulnerable to misuse and abuse,” the study found.
Between 2010 and 2016, Sri Lanka secured loans worth US$5,895 million from China to finance its infrastructure. China was the main provider of foreign loans for infrastructure development in Sri Lanka during this period, accounting for 37% of the total.

More than half of these funds (53%) were made through projects resulting from unsolicited proposals (USPs), which were approved by SCARC. The analysis reveals that although the Special Framework has successfully tapped into China’s large pool of funding, in the process of securing these funds, the country has incurred many additional costs.
“The lack of visibility of these costs can lead to overestimating the benefits of such funding and underestimating the true costs,” Verité said.

The case study also highlights the ineffectiveness of the monitoring processes in place. Although oversight institutions such as the Auditor General’s Department frequently report financial and other irregularities related to the project, there was no evidence of
action has been taken against those involved.
“That’s a key contributing factor to the recurrence of these problems. Weak and ineffective oversight makes the benefits of bypassing processes far outweigh the risk of getting caught,” the think tank asserted.


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