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(Bloomberg) — Proparco, the private-sector financing arm of Agence Française de Développement, plans to fund Sri Lankan companies involved in renewable energy, agribusiness and women-led small enterprises, according to Vincent Vandenbussche, acting regional director for South Asia.
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The Paris-based development agency decided to resume financing projects in Sri Lanka after the South Asian island’s sovereign credit rating was upgraded out of default, Vandenbussche said in an interview in Colombo. Proparco last invested in the island nation through Hatton National Bank in 2020, just before the country’s economic crisis, of which $20 million remains to be repaid.
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“We want to help Sri Lanka to continue its development and to help low-income people move to the middle class,” Vandenbussche said. Renewable energy will also help protect lower income families and businesses from imported fuel price shocks, he said.
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Proparco’s return will open an avenue for foreign debt financing to boost private investment, as Sri Lanka looks to sustain its recovery after an unprecedented default in 2022. The country secured $695 million from the International Monetary Fund last month to shore up reserves as higher energy prices, linked to the war in Iran, cloud the growth outlook.
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READ: Sri Lanka Took Steps to Boost Dollar Liquidity, Governor Says
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The French lender initially plans to provide foreign exchange-denominated financing to local banks, which can then lend to small borrowers, Vandenbussche said.
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Renewable power or battery energy-storage projects could also access credit lines that Proparco expects to extend through local lenders, in line with its decarbonization mandate.
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With the electricity utility also now offering dollar-denominated tariffs, reducing the currency risk, Proparco could consider financing such projects directly, Vandenbussche said.
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Still, Proparco is not taking equity positions in Sri Lanka due to currency depreciation risks.
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“Because as soon as you invest in equity, you take the currency risk that goes with it,” Vandenbussche added.
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