49365-002: Capital Market Development Program | Asian Development Bank

Sri Lanka: Capital Market Development Program

Sovereign (Public) Project | 49365-002 Status: Active

The specific objective of the proposed Capital Market Development Program (CMDP) is the enhanced capacity and size of the capital market that is grounded on a strong legal and regulatory framework. The CMDP is scheduled to be approved by the Board in the fourth quarter of 2016.

Project Details

Project Officer
Lambert, Donald J. South Asia Department Request for information
Country
  • Sri Lanka
Modality
  • Loan
  • Technical Assistance
Sector
  • Finance
 
Project Name Capital Market Development Program
Project Number 49365-002
Country Sri Lanka
Project Status Active
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 3446-SRI: Capital Market Development Program
Ordinary capital resources US$ 250.00 million
TA 9213-SRI: Developing the Capital Market
Technical Assistance Special Fund US$ 750,000.00
Financial Sector Development Partnership Special Fund US$ 750,000.00
Japan Fund for Poverty Reduction US$ 500,000.00
TA 9213-SRI: Developing the Capital Market (Supplementary)
Technical Assistance Special Fund US$ 200,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Money and capital markets

Gender Equity and Mainstreaming No gender elements
Description The specific objective of the proposed Capital Market Development Program (CMDP) is the enhanced capacity and size of the capital market that is grounded on a strong legal and regulatory framework. The CMDP is scheduled to be approved by the Board in the fourth quarter of 2016.
Project Rationale and Linkage to Country/Regional Strategy

The capital market in Sri Lanka has not been effective in channeling the country's savings to support investment in the economy. From 2006 to 2015, government policy support for capital market development was limited. Governments recognized what needed to be done to strengthen the capital markets, but reforms were piecemeal and the appetite for designing and implementing comprehensive change was lacking. This resulted in weak investor confidence. The market capitalization of the Colombo Stock Exchange (CSE) stagnated as a percentage of gross domestic product (GDP) at about 30% during 2006 2015. The CSE's price index dropped by 9% between January 2016 and June 2016 a significantly weaker performance than those experienced during the same period by other middle income countries in the region.

Sri Lanka's underdeveloped capital market narrows the viable financing options for companies seeking to grow. It also places undue pressure on the banking sector. Bank assets account for almost 60% of the country's overall financial assets, and the sector is not the most appropriate nor does it have the capacity to offer the long-term financing essential for private sector capital investments and infrastructure projects. The corporate bond market is still in the nascent stage. The ratio of outstanding corporate bonds to GDP is only 2% and significantly lower than those of other middle-income countries in Asia.

Against this backdrop, the program will seek to deepen and broaden Sri Lanka's capital market by (i) extending the government yield curve and thereby promoting a more liquid government bond market and eventually a more developed corporate bond market; (ii) catalyzing institutional investor demand by broadening, deepening, and diversifying the investor base; (iii) strengthening the institutional and regulatory capacity of the SEC, the IBSL, the EPF, and SLAASMB; (iv) developing important market infrastructure such as a surveillance systems, trading system, and information and communication technology systems; (v) enhancing capacity development through training and promoting financial literacy; and (vi) enhancing the supply of alternative financial instruments such as derivatives to include for commodities and securitized bonds. The program will also support financial inclusion by promoting financial literacy among retail investors, expanding mutual funds, and developing consumer protection in the insurance sector through its adoption of grievance mechanisms.

ADB has worked to closely coordinate its capital market development activities with those of other development partners and to complement their efforts. ADB's program is part of an umbrella operation to support economic recovery led by the International Monetary Fund (IMF). In June 2016, the IMF approved an extended fund facility of $1.5 billion for Sri Lanka that aims to restore macroeconomic stability. The World Bank approved a $100 million development policy loan in July 2016, with the Japan International Cooperation Agency providing another $100 million of parallel financing. ADB has been closely coordinating with these organizations.

ADB's finance sector strategy for Sri Lanka, which is part of its country partnership strategy and country operations business plan, is based on the government's emphasis on private sector development, lessons from ADB's previous finance sector interventions, and coordination with other development partners.

Impact Basic capital and investment needs, as well as Sri Lanka's longer-term economic objectives supported.
Project Outcome
Description of Outcome The size, depth, and capacity of the capital market enhanced.
Progress Toward Outcome Of the 13 first tranche policy actions, 4 are still pending. The government has requested until 26 October 2017 to complete them.
Implementation Progress
Description of Project Outputs

1. Enhanced market facilitation.

2. Enhanced demand measures.

3. Enhanced supply measures.

Status of Implementation Progress (Outputs, Activities, and Issues) Of the 13 first tranche policy actions, 4 are still pending. The government has requested until 26 October 2017 to complete them.
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects Minimal or no adverse environmental impact.
Involuntary Resettlement Not applicable.
Indigenous Peoples Not applicable.
Stakeholder Communication, Participation, and Consultation
During Project Design ADB held a stakeholder seminar on 28 June 2016 in Colombo where there were over 100 attendees.
During Project Implementation
Business Opportunities
Consulting Services On the attached TA, ADB will recruit at least two consulting firms and three individual consultants to provide 37.5 person-months of international and 27 person-months of national consulting services. Consultants will be recruited using the quality- and cost-based selection method with a standard quality cost ratio of 90:10 due to the highly specialized expertise needed. The consultants will be engaged by ADB in accordance with the Guidelines on the Use of Consultants (2013, as amended from time to time). All the disbursements under the TA will be made in accordance with ADB's Technical Assistance Disbursement Handbook (2010, as amended from time to time). Procurement will be carried out in accordance with ADB's Procurement Guidelines (2015, as amended from time to time).
Procurement No major conventional procurement is envisaged under the project.
Responsible ADB Officer Lambert, Donald J.
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Ministry of Finance and Mass Media
Treasury Building
Colombo-01
Sri Lanka
Timetable
Concept Clearance 29 Apr 2016
Fact Finding 06 Jun 2016 to 30 Jun 2016
MRM 11 Aug 2016
Approval 26 Oct 2016
Last Review Mission -
Last PDS Update 13 Sep 2017

Loan 3446-SRI

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
26 Oct 2016 24 Nov 2016 - 31 Dec 2018 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 250.00 Cumulative Contract Awards
ADB 250.00 26 Oct 2016 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 26 Oct 2016 0.00 0.00 0%

TA 9213-SRI

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
26 Oct 2016 14 Dec 2016 14 Dec 2016 30 Jun 2019 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,700,000.00 500,000.00 0.00 0.00 0.00 0.00 2,200,000.00 26 Oct 2016 367,887.47

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

None currently available.


The Public Communications Policy (PCP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

Requests for information may also be directed to the InfoUnit.

Tenders

Tender Title Type Status Posting Date Deadline
Capital Market Qualification Framework Expert Individual - Consulting Active 28 Oct 2017 03 Nov 2017
Chief Economist Individual - Consulting Active 09 Oct 2017 15 Oct 2017

Contracts Awarded

Contract Title Approval Number Contract Date Contractor Contractor Address Executing Agency Contract Description Total Contract Amount (US$) Contract Amount Financed by ADB (US$)
Capacity Development Technical Assistance 9213 28 Apr 2017 Aries Group, Ltd. (United States) 1745 Jefferson Davis Highway #507 Arlington, Virginia 22202 U.S.A. Ministry of Finance 350718
Capacity Development Technical Assistance 9213 28 Apr 2017 Aries Group, Ltd. (United States) 1745 Jefferson Davis Highway #507 Arlington, Virginia 22202 U.S.A. Ministry of Finance 350718
Capacity Development Technical Assistance 9213 13 Mar 2017 International. Securities Consultancy Ltd. (Hong Kong, China) 9A Carfield Commercial Bldg. 75-77 Wyndham Street, Central Hk, China Ministry of Finance 748100

Procurement Plan

None currently available.