Sri Lanka should explore alternative financing models- Howells
The Sri Lankan government needs to explore alternative models of financing in order to sustain its infrastructure development drive according to visiting Director, Global Infrastructure and Project Finance of Fitch Ratings New York, Cynthia Howells.
“There is a high demand for t he development of roads, rail travel, energy, hospitals, schools, public housing and the like and there are many projects currently being planned and they have generally been financed by international borrowings, but can Sri Lanka use methods which have been utilized internationally to attract capital for infrastructure develop- ment?”
Howells was speaking at a forum hosted by Fitch on the theme: ‘Infrastructure Financing in Developing Countries: A New Role for Corporates and Banks’
“I see very little reason why this is not possible and there are several advantages to involving non-government banks and private investors in such infrastructure financing. Going from what we’ve seen globally, past a point the government can’t do it all.
Finding private investors to finance smaller, more straightforward infrastructure projects frees up the government to focus on more large-scale projects and this is one of the main advantages of private sector debt financing. ” Howells said.
She noted that such alternative methods, if successfully explored, would also strengthen the local economy whilst accelerating the pace of infrastructure development by allowing for several developments to take place simultaneously.
She further noted that a transition to private sector debt financing would not be without its disadvantages, particularly a higher financial risk as a result of the lack of a government guarantee through the backing of such financing instruments by sovereign credits.
Howells stated that ratings agencies would have a role to play in such scenarios by mitigating such risks through stringent evaluations.
In the move towards private sector funding of infrastructure development, Howells stated that a gradual transition could be adopted whereby the government could assign a portion of debt on infrastructure projects to the private sector, with the portion of the project not backed by sovereign credits being rated separately.