Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational Companies Comments Off on Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational Companies 77

Article by: Prof. W. D. Lakshman

The decision of 29 October 2019 by the outgoing Cabinet to sign a compact with the Millennium Challenge Corporation (MCC) has given rise to extensive public discussion and debate. A new President has been elected on November 16, 2019, with a new Prime Minister and a new Cabinet sworn in soon after. The new government is bound to reconsider its predecessor’s decision to sign the MCC agreement.

The proposed MCC compact, once signed, would make a US government grant of USD 480 million available for expenditure in two Sri Lankan projects – a transport development project (costing $400 million) and a land project (costing $80 million). These two projects are supposed to address two binding growth constraints in the country: inadequate infrastructure of transport logistics and restricted access to land for investment purposes. The MCC grant funds will be disbursed in stages over a period of five years. Unlike other official grants, the MCC grant will not be disbursed to the Sri Lankan government. Instead, these funds will be channelled into a Sri Lankan private company specially set up in Colombo for this purpose by the MCC to be used in the implementation of the two accepted projects. This company will monitor the progress achieved in the projects concerned and grant funds will be released step by step if progress achieved in each stage is judged satisfactory. The US government reserves the right to terminate the operation of the project at any time if the MCC is not satisfied with project implementation progress.

Millennium-Challenge-Corporation-in-Sri-Lanka--Prof.-W.D-Lakshman--Governor-of-the-CBSL---BiZnomics

It is good to begin this brief article about the desirability or otherwise of signing the MCC compact by placing the MCC in its proper global perspective. The “Western development establishment” led by the US has dragged increasing numbers of developing countries into the net of neoliberalism since the 1970s and 1980s. Sri Lanka has the dubious reputation of having been a pioneer to be so dragged into a neoliberal policy framework. The use of foreign aid conditionality has been the mechanism widely used by the Western development establishment to neo-liberalise developing countries.

Millennium-Challenge-Corporation-in-Sri-Lanka--BiZnomics

The IMF and the World Bank have formed the institutional mechanism used in the process. Under conditionality, the countries receiving grants and loans on concessionary terms were required to gradually meet the laid down policy conditions after loans were authorized and dispensation commenced
in tranches. The grant “assistance” to a developing country1 through Millennium Challenge account of the US signifies a different way of converting the developing country victims into a neo-liberal policy framework. This method has been described as “preemptive” development assistance. It entails refusal and withholding of funds until demands made by the donor country are met.

The conditions to be met are listed under three broad headings, namely
1) ruling justly (good governance);
2) investing in people (health and education for all);
3) “economic freedom” (sound economic policies that foster enterprise and entrepreneurship)

Cont..
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BiZnomics Global Out-front Comments Off on BiZnomics Global Out-front 185

Global-Outfront

President Trump offered to meet North Korean leader Kin Jong Un at the demilitarised zone following the G 20 Summit raised prospects for a third face to face meeting between the two leaders.

G -20 Osaka Summit 

14th G-20 Summit – a forum of 19 member countries and European Union was held in Osaka, Japan 28 -29 June 2019 with the participation of heads of G 20 Governments. International Monetary Fund, Asian Development Bank (ADB), International Labour Organization (ILO), Organization for Economic Corporation and Development (OECD), United Nations (UN), World Bank (WB), World Health Organization (WHO), World Trade Organization (WTO), represented in the summit by their respective heads of Institutions. 

Global-Outfront-01

Collectively G 20 nations represent more than 80 percent of global output and 2/3 of its people. Easing the global tension centred around US – China trade dispute, President Trump announced that he has agreed to allow US companies to sell high tech components to Chinese telecommunication giant Huawei. He also announced that China will buy more US farm goods. US President indicated that US will call off raising tariff on Chinese goods and negotiations to end the trade dispute between two countries will continue.

Prime Minister Abe who hosted the G 20 Summit explained that global leaders have affirmed free and fair and inclusive economy and open competition are the principals to lead the world economy in future.

Global-Outfront
Source: IMF Economic Outlook

 

 

Global Outfront
Source: IMF Economic Outlook

 

As estimated by IMF total GDP of G20 nations of nearly USD 60 trillion account for 78 percent of the world total GDP of USD 88 trillion. In terms of population, G20 nations is estimated to have 4.6 billion people in 2019 accounting for 61 percent of the world total population of 7.5 billion. China takes the lead with 31 percent and India accounts for 29 percent making two emerging nations in Asia having 60 percent of the population of G20 nation.

By: BiZnomics research team

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Banking In a Spot of Bother 0 298

By : Kenneth De Zilwa

The Sri Lankan Banking system credit growth is strongly correlated with the economic activity of the country. The Correlation Coefficient between GDP growth rates and Banking Sector Annual Average Loan Growth is 0.76.

The Banking sector profits have witnessed a 25pct growth from 2016 to 2017. The growth comes on the back of highly volatilize exchange rates and interest environment in the economy. NII of the banking sector to showed a growth 12pct for the corresponding period, thus remaining flat from 2015.  Other income have accounted for 73pct while NII contributes circa 27pct of the total income of the Banking sector.

Banking In a Spot of Bothe

The Sri Lankan economy has recorded an average growth of 4.5 pct over the past 66 years. While only recording above average growth rates of 8pct post war in 2010, 2011 and 7pct growth rates in 2013 and 2014.  In 2015, 2016 and 2017 the economic activity declined and continued to grow marginally above the trend line growing   by 4.8pct in 2015, 4.4pct in 2016 and 4.0pct in 2017. Credit growth has decelerated from 32pt in 2016 to 18.1pct in 2017. Recording a  57pct year on year decline.

Banking sector credit growth has predominantly focused on the Industrial sector which accounts for circa 42pct of which housing and construction accounted for 75pct of the total, while services accounted for 30pct, within which tourism based credit creation was circa 29.3pct while consumption based credit lending stood at  21pct and agriculture 9pct.

Banking In a Spot of Bothe

Therefore Econsult anticipates that the slowing of credit growth would translate to an overall slowing of the real sector and lower GDP growth for 2018 to 3.0pct and 2019 to 3.5pct. On the back of tighter credit controls, declining agricultural supplies,  incremental VAT and taxation ushered in by the New Inland Revenue Act 2017, and the currency depreciations

The rating agency too have indicated that Banks would have to consider supplementing risk capital by cutting down dividend payout and consider further capital raising based on Basel III rules since CAR have come under pressure due to rising NPL’s to equity & reserves. This could mean that Banks would be forced to tighten credit while adopting more secure means of lending. Such outcomes could pose more issues to the already choked real economy. The recent deceleration of the economy is bound to hit the banking sector in Q4 2018 and Q1 2019.

Source : CBSL Annual Report & Thmosonreuters