Other State Department Archive Sites

The State Department web site below is a permanent electronic archive of information released online from January 1, 1997 to January 20, 2001. Please see www.state.gov for current material from the Department of State. Or visit http://2001-2009.state.gov for information from that period. Archive sites are not updated, so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides for FY 2000: Sri Lanka Report prepared by U.S. Embassy Colombo, Sri Lanka, released July 1999   Note*

Chapter VIII

TRADE AND PROJECT FINANCING

Banking System

Sri Lanka has a fairly well diversified banking system which includes the Central Bank of Sri Lanka, two large state-owned commercial banks, seven private domestic commercial banks, eighteen foreign banks, a national savings bank, seventeen regional rural development banks, two large development finance institutions--the Development Finance Corporation of Ceylon (DFCC) and the National Development Bank (NDB)--a mortgage bank, and ten merchant banks. There are two American banks (Citibank N.A. and American Express) among the foreign commercial banks operating in Sri Lanka. In addition, Bankers Trust has correspondent banking operations here. Recently, Citibank, in collaboration with the NDB, opened a joint venture investment bank in Sri Lanka. The domestic commercial banks operate a wide network of branches throughout the island. All commercial banks operate foreign currency banking units (FCBU), and conduct off-shore business and finance projects approved by BOI. All Sri Lankan commercial banks have correspondent relationships with U.S. banks. In 1993, Sri Lanka adopted Basel Accord capital guidelines of 8 percent of risk-adjusted assets as the minimum capital requirement for commercial banks. Commercial banks are also required to comply with Sri Lanka Auditing and Accounting Standards and Central Bank guidelines on loan loss provisioning.

Foreign Exchange Controls Affecting Trading

There are no foreign exchange controls affecting active trading. Sri Lanka removed all exchange control restrictions on current account transactions effective March 15, 1994. Controls do exist on capital account transactions, but these are generally avoided on projects receiving Board of Investment (BOI) approval.

General Financing Availability

Commercial banks provide term loans and working capital loans for importers. High interest costs (averaging 20 percent; about 15 percent for prime customers) are a fact of life faced by the local business community, but foreign investors, BOI-approved local firms and exporters can access dollar-denominated loans with dollar interest rates. Two local development banks provide development financing and equity. The commercial banks are allowed to borrow abroad up to 15 percent of their capital funds.

Most foreign-owned firms must have foreign sources of financing for fixed and working capital requirements. Foreign majority joint ventures are not allowed automatic access to local credit markets. Such firms must get approval from the Central Bank on a case-by-case basis.

Export Financing and Insurance

U.S. Exports to Sri Lanka can be supported by the U.S. Export-Import (ExIm) Bank, which can provide loan and loan guarantee programs to U.S. exporters interested in exporting to Sri Lanka. Although ExIm Bank financing has infrequently been used for exports to Sri Lanka, in 1997, ExIm credits of US$ 10 million financed exports of prefabricated building and components made in the U.S. for a U.S.-Sri Lanka joint venture porcelain factory in Sri Lanka.

The U.S. Department of Agriculture's PL-480 and GSM credit guarantee programs are currently in operation to finance U.S. wheat and cotton exports to Sri Lanka.

The Overseas Private Investment Corporation (OPIC) provides investment insurance guarantees for U.S. investors. OPIC currently provides coverage to banking sector investments in Sri Lanka.

Project Financing

Funds provided through multilateral agencies have been the major source of term lending for government projects. The Asian Development Bank and the World Bank are the major sources of project financing. The U.S. Trade and Development Agency (TDA) funds feasibility studies, orientation visits, specialized training grants, business workshops and various forms of technical assistance to help American businesses compete for infrastructure and industrial projects. Long-term subordinated debt for private infrastructure is available through the Private Sector Infrastructure Development Company (PSIDC), a state-owned company. PSIDC, established in 1995, supplements the usual commercial sources of finance for infrastructure projects with funding obtained from the World Bank and the KfW of Germany. It concentrates on four areas, namely power, telecommunications, transport and solid waste management. In addition, bilateral donors like Japan and Germany also fund major projects by providing long term concessional loans.

Existing World Bank IDA loans:
- $39 million for Colombo environment improvement
- $77 million for private infrastructure development
- $64 million for teacher education
- $70 million for general education
- $15 million for environmental action
- $24 million for energy services delivery
- $18 million for health services
- $57 million for Mahaweli restructuring
- $29 million for emergency Y2K technical assistance

Proposed IDA loans:
- Kelanitissa Power partial-risk guarantee
- Legal reform
- Postal service reform
- Northeast irrigation rehabilitation

Existing ADB loans:
- $75 million for water supply and sanitation
- $30 million for southern road development
- $20 million for perennial crops development
- $16 million for watershed improvement
- $20 million for science and technology personnel
- $20 million for north central province rural development
- $75 million for power systems expansion
- $60 million for plantation reforms
- $80 million for road network development
- $74 million for urban development and housing
- $37 million for tea development

Proposed ADB loans (1999-2000):
- $10 million for biodiversity conservation
- $30 million for coastal resource management
- $80 million for southern transport development
- $20 million for forestry resource management
- $40 million for western river basin
- $40 million for private sector development
- $50 million for power sector restructuring

Selling to the Asian Development Bank: A Commercial Liaison Office which reports directly to the Office of Multilateral Development Banks at the Commerce Department in Washington, assists U.S. suppliers and consultants in winning contracts on ADB-funded projects and activities. The office includes a Senior Commercial Officer and two Commercial Specialists. One of the specialists represents the United States-Asia Environmental Partnership (US-AEP) at the bank. The liaison works closely with the U.S. Executive Director who represents the United States on the Bank's Board of Directors.

Interested parties should contact the Mr. Denny Barnes, Senior Commercial Officer and U.S. Commercial Liaison to the Asian Development Bank, c/o U.S. Embassy Manila, APO AP 96515; email: Dbarnes3@doc.gov; tel: (632) 890-9364; fax: (632) 890-9713.