21 September, 2019

Blog

No Good Reason To Back Out Of The $480 Million MCC Grant: Advocata Institute

Sri Lanka could lose out on interest-free aid to develop transportation infrastructure and improve land management, if the Cabinet delays decision on the MCC grant.  

By Advocata Institute –

Sri Lanka is at risk of losing a US $480 million Millennium Challenge Corporation (MCC) grant due to a campaign of misinformation and political differences among the ruling ‘coalition’. The MCC grant represents the largest grant from a single source Sri Lanka has ever received and presents a valuable opportunity to fix some of the country’s constraints to economic growth.  

President Sirisena

Despite the fact that this grant is being offered as a response to a proposal submitted by the Sri Lankan Government, rampant political dysfunction has resulted in the Government failing to sign the final agreement. Sri Lanka is now at risk of losing the grant, if it does not receive Cabinet approval and fails to sign the agreement prior to the September 18th MCC Board meeting.

What is the MCC Compact?

The MCC Compact is a grant funded by the Millennium Challenge Corporation, a foreign assistance agency of the U.S. Government. Although heads of the U.S. State Department and U.S. Treasury sits on its board, the MCC operates independently as a separate entity. The aid agency uses a competitive process to select countries on a variety of criteria that include a commitment to good governance, investing in healthcare, education and economic freedom.[1] The pool of eligible countries is also limited to those falling under the threshold for the World Bank’s classification for upper-middle income countries.

Sri Lanka has been awarded a US $480 million 5-year Compact in response to a proposal submitted by the Sri Lankan Government in 2017.[3] Selected countries then go through a constraints analysis study to identify the bottlenecks for economic growth. Sri Lanka’s study was led by the Sri Lankan Government with the assistance of Harvard University’s Centre for International Development and the MCC.  

Based on the constraints identified, the Compact seeks to address two critical impediments to growth through its funding: (1) inadequate transport logistics infrastructure and planning; and (2) lack of access to land for agriculture, the services sector, and industrial investors. 

The Transport Project seeks to modernise bus systems in the Colombo Metropolitan Region and optimise efficiency of road networks through better traffic management. The project will also work to reduce transport costs and increase mobility between the central region of the country, and ports and markets in the rest of the country. The Land Project seeks to improve access to land, and improve land valuation systems. The project will also focus on digitising the national deeds registry and strengthening legal governance of land in the country. 

The nature of opposition 

Much of the opposition towards the agreement has centred on fears about ulterior geopolitical motives and threats to Sri Lanka’s national sovereignty. Hype surrounding the MCC has also become intertwined with discourse surrounding the renewal of the Acquisition and Cross Servicing Agreement (ACSA) and the Status of Forces Agreement (SOFA). However, MCC spokespersons have categorically confirmed that the MCC is an independent development agency and the Sri Lanka Compact is not linked the military agreements. These two military agreements have since been placed on hold by the U.S. Government to mitigate concerns about their connection to the Sri Lanka Compact.[3]

Fears have also been raised about covert operations for the U.S. government to acquire land and build military bases on Sri Lankan territory through the projects, hindering the willingness of Cabinet to approve the agreement prior to the upcoming elections. According to publicly available details on the Land Project (which represents only 14% of the total grant budget), the mandate seeks to merely strengthen government administration capacity and assist with technological improvements. The larger part of the Compact (the USD 350 million Transport Project), is focused on optimising public transportation infrastructure.[4] The projects are to be implemented by the Sri Lankan government. The fears raised don’t seem to have any basis in reality.

There is certainly merit to the argument that given the country is so close to an election, a President with a fresh mandate should be allowed to make the final decision on the MCC. Yet given the September deadline, this may not be a luxury that Sri Lanka has.  

The authorizing U.S. statute only allows the MCC to fund low income and lower-middle income countries for development projects,[5] and as Sri Lanka has transitioned into an upper-middle-income country, its window of opportunity to capitalise on the MCC could be closing. The MCC has communicated to the Sri Lankan Government that there is a possibility that when the Board meets in September, Sri Lanka may be deemed ineligible for the grant on the basis of the country’s classification as an upper-middle income country.

Given this looming deadline, it is a matter of urgency that the Cabinet makes a final call on the grant before the September 18th Board meeting. 

Why do we need it?

Much of Sri Lanka’s development over the last decade has been driven by high levels of government spending. However, with weak tax revenues (11.8% of GDP in 2018)[6], high budget deficits (5.3% of GDP in 2018)[7] and enormous debt (total government debt was 82.8% of GDP in 2018)[8], it has become unsustainable to continue relying on government spending to drive growth. Sri Lanka’s high concentration of borrowing from a handful of financing sources, has also made it inherently vulnerable to external shocks and poor national macroeconomic management. In 2018, approximately half of Sri Lanka’s borrowing was from private capital markets, with nearly a third of total borrowing in 2018 coming from China.[9] This has severely destabilising implications for both Sri Lanka’s economic growth and it’s foreign policy position.  

The MCC Compact could go a long way in addressing both of these issues. Implementation of the projects would diversify sources of development finance while creating essential infrastructure to improve land administration and internal mobility options. Uneven development and chaotic land administration have become major obstacles to Sri Lanka’s sustenance of economic growth.

In the final cost-benefit analysis, and based on the publicly available information, the compact seems to present an attractive development opportunity. It is important to note that the MCC compact is a grant, not a loan and therefore is not required to be repaid. In the event that Government fails to sign the agreement in time and seeks to undertake the projects on its own accord, it would need to borrow the funds from another external source. 

Earlier this year the government issued international bonds of US$1bn at an annual interest rate of 6.85%.[10] It would be safe to assume that future borrowings are likely to reflect similar conditions. This means that the Government would not just be paying back the loan amount, but also a significant amount of interest on top of it – adding to Sri Lanka’s already debilitating debt status. 

Those who wish to argue against the compact need to refer to the relevant documents and provide evidence if their case is to be taken seriously. At this stage, if the Government chooses not to sign the agreement prior to September 18th, it runs the risk of choosing to increase the national debt burden as well as delay essential development.  Such a choice should be based on sound reasoning and evidence. It shouldn’t be due to personality conflicts, absurd fear mongering or petty politics.

[1] Congressional Research Service (2018). Millennium Challenge Corporation.

[2] Wettasinghe, C (2019). ‘Sri Lanka at risk of losing US$480mn Millennium Challenge grant’. Economy Next. [online] Available at: https://economynext.com/Sri_Lanka_at_risk_of_losing_US$480mn_Millennium_Challenge_grant-3-15620-1.html [Accessed 30 Aug. 2019].

[3] Ibid.

[4] Congressional Notification (2019). Millennium Challenge Corporation. April 25. [online] Available at: https://www.mcc.gov/content/uploads/cn-042519-sri-lanka-intent-to-sign.pdf [Accessed 30 Aug. 2019]

[5] Principles into Practice: Country Selectivity (2014). Millennium Challenge Corporation. [online] https://www.mcc.gov/content/uploads/2017/05/paper-2014001150201-principles-selectivity.pdf [Accessed 30 Aug. 2019]

[6] Ministry of Finance, Sri Lanka (2019). Annual Report 2018. [online] Available at: http://www.treasury.gov.lk/documents/10181/12870/2018/c65529f6-5fac-4f9b-8f38-758ab93676fd [Accessed 29 Aug. 2019].

[7] Ibid

[8] Ibid

[9] Wignaraja, G (2019). ‘Making the MCC Compact Work for Sri Lanka’. Lakshman Kadirgamar Institute. 16 August. [online] Available at: https://www.lki.lk/blog/making-the-mcc-compact-work-for-sri-lanka/ [Accessed 30 Aug. 2019].

[10] Aneez, S & Fioretti, J (2019). ‘UPDATE 4-Sri Lanka raises $2.4 bln in dollar bond sale – term sheet’. Reuters. March 7. [online] Available at: https://www.reuters.com/article/sri-lanka-debt-bond/update-4-sri-lanka-raises-24-bln-in-dollar-bond-sale-term-sheet-idUSL3N20U2CH [Accessed 30 Aug. 2019].

Print Friendly, PDF & Email

Latest comments

  • 22
    1

    There are n free lunches buddy…….especially from the US.

    • 17
      1

      Advocata is a US funded NGO front that publishes half-baked research based on fake analytics, economic diagnostics and deep dives – like the MCC – as Madam Tamara Kuananyakam showed in a detailed article on how think tanks, NGOs and media are captured and colonized by the Washington Neo liberal Consesus to loot the global south.

    • 0
      9

      Hela,
      “There are no such things called free lunch”! but the qualifier “…specially from the US” is wrong b’cos it is purely a judgement call based on left-wing bias. The opposite is more closer to the truth. That is b’cos, unlike China & ex commies which doesn’t believe in privacy, civil rights & freedom of expression, US is a nation built on the principle of individual freedom. Their foreign policy, which prioritize stopping communist expansion & helping poor nations to stand on their own feet, also is an extension of the same basic values. Therefore, US aid will not harm our sovereignty as long as we are not too cozy with commies in such a way that it challenges US interests – a fair expectation of anybody!

      As I wrote in my reply to the previous essay on the same subject, MY 3’s suspicions towards MCC has its roots in his deep rooted failed left-wing political ideology. I think an additional personal reasons also at play here: A personal distaste towards Ranil he began to develop later. The reason may have nothing to do with politics but all to do with sociology – namely the inability to mix socially as equals particularly at the spousal level! The accusation of the co-called bond scam is only an excuse to cover up the personal aspect of the animosity. As a matter of fact, MY 3 presented three different reasons for his rift with Ranil but non went beyond the level of mere gossips!

      Keeping such an immature man who can make false statements at every turn, as the president is very dangerous to the country. To keep such a person as the leader of SLFP will be very harmful to its future, I must warn!

    • 5
      1

      CT,

      Advocate Institute?

      Why is the US giving away $450 million, when they have deficits if $1,000 Billion, unless they expect some pay back!? What is the payback they are expecting? Clearly, this is not altruism.

      What are they advocating? Sri Lanka’s interest or the sponsors of the advocate institute , the US interests, in their hegemonic contest against China?

      Sri Lanka is small potatoes for them, but the only potato, the Paras have got.

      https://www.nytimes.com/2019/09/04/magazine/iran-strike-israel-america.html?smid=nytcore-ios-share

      The main question is will the Paras dominated by the Para-Sinhala, mean IQ 79, see through this, the land will be used to advance their own interests?

      https://www.nytimes.com/2019/09/04/magazine/iran-strike-israel-america.html?smid=nytcore-ios-share

      See how the US, Israeli and Wahhabi interests are being advanced in The Muddled Middle East.

    • 6
      0

      Advocate Institute,

      What did they have in the six bags? $480 million in cash grants to Sri Lanka to help improve the transportation infrastructure?

      http://www.dailymirror.lk/breaking_news/Six-US-persons-refuse-their-bags-checked-in-Sri-Lanka-Wimal/108-174054

      Why did they refuse to show the bags? What was in those bags? Why did they take it away to the Maladives?

  • 22
    4

    Thanks to President Sirisena Sri Lanka narrowly escaped the SOFA which would have turned Lanka into a US military colony! Why is the US so desperate to shove 480 $ down Sri Lanka’s throat? To land and ocean grab!
    The MCC fake aid had a huge budget for the media and for its puppet NGOs! Here wer go!

    The US propaganda blitz to turn Lanka into an unsinkable aircraft carrier with its puppet Bondscam Ranil and his idiotic and corrupt butterflies is on going..

    • 3
      2

      Kapila

      “The US propaganda blitz to turn Lanka into an unsinkable aircraft carrier with its puppet Bondscam Ranil and his idiotic and corrupt butterflies is on going..”

      The SOFA 2007 was first signed by smart patriotic American Citizen Gota, the national hangman.
      If elected the same American goon will not only sign SOFA 2019 but also get his Basil to sell it for a good price.

      Please make sure your family is safe else Basil will sell your mother, father, grandmother, grandfather, your wife, children, grandchildren, sisters, ………………. You elect Gota you get 154 of his relatives to loot the country.
      If you are lucky you might get some crumbs.

  • 19
    1

    After the Easter Sunday Economic terrorism with love from America, there was a lull, but now its is back to its dirty tricks again, crashing the rupee and talking about debt traps. However, mysteriously despite the hit to the economy, people losing jobs, no tourists, GDP at all time low etc. Washington Consensus has up-graded Sri Lanka has been made an Upper Middle income country – to force the MCC signing immediately – under the treat that the paltry 480 from MCC would be take away.. Well good riddance.
    However, Sri Lanka is a gold mine of rare earth elements and much richer than Greenland which was estimated to be worth a trillion $$ and US, France and Norway are drilling in on the East coast also for the Trinco Base as time runs out with Puppet Ranils days numbered as elections loom!
    MCC should

  • 10
    0

    MCC is Church, CIA and the Billionire George zorros. He operated from Belgium as I suppose subversive activities are legally banned in the USA, Now, US senate has taken over it.It is
    Mangalaya who signed an agreement with MCC in 2016. Maithripala sirisena did not allow to finalize all other agreements in 2018 November or so. People related to CIA were in Srilanka in early October, I think Mahinda Rajapakse knew something about the 2018 October revolution.,
    Advocata institute which is trying make Sri lanka another Thahiti.
    Sri lanka’s corrupt politicans get loans but really we do not want loans. We send it back as CAr imports, wasteful expenditure.

  • 13
    0

    “Despite the fact that this grant is being offered as a response to a proposal submitted by the Sri Lankan Government,”
    Thank You for your generosity. People in this country do not want your money. People very well know what is behind that US$480 million.
    This Government does not represent the views of the majority of people in the country. They are hanging on due to 19th Amendment.

  • 0
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

    • 1
      2

      Sach

      Thanks
      Keep up your good work.

  • 9
    0

    How is the funding to be appropriated?

    1. Access to land for agriculture 60%?

    2. Transport logistics infrastructure and planning 20%?

    3. The services sector 10%?

    4. The industrial investors 10%?

    Fear is also about MCC acquiring land for industrial and investment purposes (leave alone military bases) to make their grant profitable. Then is the fear about the merger with India to further strengthen the grant profitability.

    It all depends on the type of GoSL we have. One that is able to control it for the best interests of the sovereignty of the Motherland is the one we have to look too. The grant cannot just be pulled away on Sept. 18, right before election time. To do that shows that MCC is all about present regime and its power to implement industrialized land policy with the Indian merger. Can they put it in writing that it is not going to be that way?

  • 11
    1

    Sri Lanka should REJECT the MCC loan.
    MCC’s offer is NOT A GRANT. It is a Sales Agreement!
    The extraordinarily weird canvassing by the US Ambassador and various US funded cohorts and organizations to justify MCC grant itself is reason to reject it.
    Accepting a meager USD 480 million at the expense of the country’s sovereignty is not worth.
    MCC grant comes with various conditions such as signing SOFA, VFA, 2.2 million acres of lands, US law and customs offices, banks, hospitals along with an exclusive transport system facilitated by the US from Mannar to North, dividing the country.
    As mentioned previously, the 2.2 million acres of land from Colombo to Trinco (this is not a misapprehension) could include two ports, ancient kingdoms such as Anuradhapura, Sigiriya, religious sites such as Mihintale and Dambulla, ancient tanks, “Jayabhoomis” and forests.
    With the MCC grant, the US will have a permanent strategic base in the Indian Ocean in addition to taking over 2.2 million or more lands with an abundance of natural resources such as minerals, limestone, gem, graphite, quartz, clay, arable lands and potential oil fields.
    Some US cohorts say MCC’s grant is about economic interests. Yes, it is about economic interests of the US, not Sri Lanka.
    The land registration is purely to GRAB our LANDS AND INFRASTRUCTURE.
    This is even worse than the Kandyan Convention signed by some Sinhalese traitors with the British in 1815.
    I have to grudgingly agree that country’s survival from an American soft invasion is entirely in the hands of the President who had the guts to deny his approval. This is the reason I am dead against abolishing the Executive Presidency.
    Wake up Sinhalese!
    This is our motherland.
    When enemies try to invade us, we show them why this is ours.

    • 0
      7

      Champa is mad as usual.
      :
      Sl is an another hungry nation so why to reject the kind of good loan ?
      :
      You agree with ballige putha taking loans on much higher interests.
      :
      We understand that you have been the only woman who would do the services to them further.
      :
      Wait and see, Wimalawathi and you yourself will have to pay all these back. The day Wimalawathi will go down is numbered. We want him to be found dead to the mannner all the style of the kind of rascals faced it.

      • 2
        0

        Desperate Asinhalaya
        “I don’t waste my words on people who deserve my silence.”

  • 0
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

  • 3
    0

    It is said that this grant aid is in response to certain inputs made by the Government of Sri Lanka. Yes! Even the IPKF, the political solution in the nature of the 13th Amendment from India all came as a request from the Government of Sri Lanka made especially by President J. R. Jayawardena. But what happened? India tried its best to secure its interest by some sort of a subjugation of Sri Lanka and finally the whole thing boomeranged on India with the assassination of Rajiv Gandhi. No body just simply helps. Nobody tells us what are our obligations under this agreement. There was a lot of noise of a separate elevated road being constructed from Colombo to Trincomalee managed by the MCC effectively dividing the country into two. It is time that the whole thing be more transparent. The average public should be able to judge whether it is good or bad instead of relying on rumors and hearsay.

  • 2
    0

    In line with much talked about US democracy , we should open this up for public debate . After all , the independence and territorial
    integrity of our little piece of paradise is worth far more than a paltry half a billion dollars. Politicians and those with vested interests will try all the tricks in the book to rush this through as quickly as possible.

  • 3
    1

    Another chance for Sri Lanka to grow up, bite the bullet, and say NO THANKS to the ‘kind and generous’ offer.

    It is about time that we started weaning Sri Lanka away from these generous foreign ‘gifts’ that usually leave us under some form of tacit obligation to the giver. Anyway, our bog-standard politicians are hopeless at gratitude. Yes, we may find doing our own thing takes time but we will be our own masters. People, tell our political masters to grow up, be brave, and say NO.

  • 3
    1

    The “free lunch” will go on “commissions” for tenders called for projects.
    In Sri Lanka, only ‘palm oil’ works.
    Of course a miracle – ‘uncorrupted President & government’ may happen.

  • 2
    0

    MS knows that most Grants and Aids ends up in the pockets of the Lankan Elites without political border. The intended recipient, layLankans, get to enjoy only what is left.
    Advocata Institute is naïve!

  • 0
    0

    We are not that Anti-People of USA,that should be understanding by of USA hegemonic politics and its political leaders and it classes. .
    We valued fundamental norms of Democracy NOT that because of Western notion system of political order, but by our inherited norms of Sinhalese -Buddhist civilization of 2600 of teaching and its guidance.Ours Superstructure is far an advance than certain developed Capitalist Countries .We enjoy right to vote by granting universal franchises since 1931 ,that was the fundamental key pillar of functions of Democratic -sovereignty of Republic of Sri lanka.
    In fact that USA made mistaken that bully ours sovereignty by US $ 480 mullions of Dollars of MCC grant by can we reshapes whole economy ?

    This is an unsustainability of Economy is wrong PATH of an approach by whom?
    In that terms of bail-out that Economy that our ongoing ‘crisis’ created by whom ? Ongoing political-economic -social crisis has key focus by man made creation by current that UNP regime,which that Regime change in political -power was by products in the hand of by 2015 Jan. 8th USA led forces.

    That its Not ours Own development of catastrophe by ourselves,it was USA jointly operated & created advises by so-called Think Tanks of IMF, World Bank, ADB and other agencies including MCC of western forces. Undoubtedly which is that including USA has bigger accountability of that impending crisis since 2015 Jan 8th leading role .played By USA and UNP joint venture.
    Currently USA that MCC corporation being more generous to offer us has come bail-out ongoing Nation crisis?
    How far that USA intention monitor by citizens of Sri lankan.
    Offer that we not refuses ,but not that Cost of National Sovereignty to be surrendering for USA , which that Indo-pacific vital interest by USA?

Leave A Comment

Comments should not exceed 300 words. Embedding external links and writing in capital letters are discouraged. Commenting is automatically shut off on articles after 10 days and approval may take up to 24 hours. Please read our Comments Policy for further details. Your email address will not be published.