French development lender Proparco is set to restart investments in Sri Lanka, following the South Asian nation’s sovereign credit rating upgrade out of default status.
Vincent Vandenbussche, acting regional director for South Asia at Proparco — the private-sector arm of Agence Française de Développement (French Development Agency) – confirmed the decision to Bloomberg, citing the ratings improvement as the key trigger.
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According to the report, the priority sectors will be renewable energy, agribusiness and women-led small businesses.
“We want to help Sri Lanka to continue its development and to help low-income people move to the middle class,” Vandenbussche was quoted in the report as saying.
The move supports Sri Lanka’s broader effort to sustain its economic recovery after it defaulted on its sovereign debt in 2022.
Last month, the country received $695m from the International Monetary Fund to shore up foreign exchange reserves, amid concerns that higher energy costs tied to the Iran conflict could dampen growth.
Proparco’s most recent investment in Sri Lanka was a facility extended through Hatton National Bank in 2020, prior to the country’s economic crisis, with $20m of that amount still outstanding.
The lender’s initial approach will be to provide foreign exchange-denominated financing to local banks, which can then on-lend to smaller borrowers.
Credit lines for renewable power and battery energy-storage projects are also expected to be channelled through domestic lenders as part of Proparco’s decarbonisation agenda.
Vandenbussche noted that renewable energy investment would also help shield lower-income households and businesses from volatility in imported fuel prices.
He added that the introduction of dollar-denominated electricity tariffs by the national utility had reduced currency risk, which could open the door to direct financing for renewable energy and battery storage projects down the line.
However, Proparco is not currently pursuing equity stakes in Sri Lanka, given risks associated with currency depreciation.
