Mahinda rejects PM’s debt allegations
Posted on March 15th, 2016

Courtesy Adaderana

Prime Minister Ranil Wickremasinghe’s allegation that there are undisclosed loans and liabilities of my government which are only now coming to light is a complete falsehood, Former President Mahinda Rajapaksa said in a statement today.

In a press release Rajapaksa added, State owned enterprises engage in commercial activities and they have their own dealings with banks. Borrowings by state entities are governed by their respective acts of parliament and have to be approved by cabinet. Such borrowings are paid back from their own revenues. Some loans may be guaranteed by the Treasury and in such event are reported to Parliament.”

Full release;

Venerable members of the Mahasangha, clergymen of other faiths, Members of Parliament, and distinguished guests,

In announcing increases in the VAT and income taxes, and the reintroduction of the capital gains tax the Prime Minister said in his special statement to parliament last week that the government has been compelled to increase taxes in this manner because my government had got the country into a debt trap. The country is now facing an unprecedented economic crisis and we should examine how and why things came to such a pass.

After coming into power, the present government obtained 400 million USD under a currency swap arrangement with India in March 2015. They obtained another 650 million USD through a sovereign bond issue in May 2015. Another 1,100 million USD was obtained from India in July under a currency swap agreement. A further 1,500 million USD was obtained through a sovereign bond issue in October. Between March 2015 and March 2016, the government issued short and medium term Sri Lanka development bonds on 12 different occasions borrowing over 2,711 million USD. Thus in the 15 months they have been in power, the present government has obtained 6,361 million USD in foreign loans.

To put matters into perspective, this is enough to meet the entire foreign loan components of the Mattala airport (190 million USD) the Hambantota Port (426 million USD) Norochcholai Coal Power plant (1,340 million USD), The Colombo-Matara Highway (630 million USD), The Colombo-Katunayake Highway (248 million USD) all put together, and there would still be enough money to build not one, but two Port Cities (1,400 million USD each) one 500 megawatt Sampur Coal power plant (500 million USD) and yet another Mattala airport with the final leftovers.

This government enjoyed foreign exchange savings of around USD 2,500 million in 2015 due to the precipitous drop in oil prices after they came into power. But they could not build up foreign exchange reserves or even make the Petrolem Corporation and the Electricity Board profitable. All these colossal borrowings including the massive savings from petroleum imports have been spent on consumption. It is because of the almost comic fiscal irresponsibility shown by the government that Sri Lanka’s credit rating was downgraded by Fitch and Standard and Poor’s recently.

Explaining their reasons for downgrading Sri Lanka Fitch ratings pointed out that the government had loan repayments amounting to 4,000 million USD this year which would place an immense strain on foreign reserves. Of this four billion, more than 2,497 million USD or over 62% of the total were loans that the present government had taken in just the past year. The 1.1 billion USD currency swap arrangement with India entered into in July 2015 for six months and taken in September fell due this year. Furthermore, of the Sri Lanka Development Bonds issued since March 2015, over 1,397 billion USD were short term bonds coming due this year. The share of the repayments due in 2016 attributed to all previous governments put together was thus just over 1,500 million USD. Fitch would not have downgraded us if the debt repayments had remained at a more manageable level as was the case when the economy was managed by my government.

This downgrade has led to a situation where it has become very difficult for Sri Lanka to borrow in the financial markets and they have been forced to rely on multilateral lenders like the IMF who impose conditions such as increasing government revenue to demonstrate that the borrower will be able to pay back the money lent. This is why taxes are to be increased. Last Friday the government had to repay the 1,100 million USD borrowed from India. This month, the government was so desperate for money that they issued Sri Lanka Development Bonds with three and five month maturity periods to raise money. Development Bonds are supposed to be long term instruments. But this government has been using them to raise short term funds. Usually any country would phase out the loans they take so that there is no ‘bunching’ of loan repayments. This government has been ignoring even those basics. Such things do not go unnoticed in international credit markets.

The last time Mr Ranil Wickremesinghe was Prime Minister between 2001 – 2004, the government debt to GDP ratio was consistently above 102%. It is my government that brought this ratio down year after year until it reached 75.5% by the end of 2014. This was the lowest debt to GDP ratio achieved since 1979. During the war years from 2006 to 2009, government expenditure remained at around 23% of GDP but after the war, we controlled expenditure until it reached 18.3% in 2014 – the lowest govt. expenditure to GDP ratio since independence.

It is because of this demonstrated fiscal dicipline that the IMF gave my government a stand-by facility of 2.6 billion USD during the global economic crisis of 2009 without any of the strict conditions that they have imposed on the present government. My government did borrow money to build infrastructure projects, but these were long term concessional loans at 2% or less in interest. Furthermore such borrowings were spread out over many years. We never borrowed for consumption like the present government which is why there were no fiscal fiascos like sweeping revisions of budget proposals and constant revision of tax rates when my government was in power.

The prime Minister’s allegation that there are undisclosed loans and liabilities of my government which are only now coming to light, is also a complete falsehood. State owned enterprises engage in commercial activities and they have their own dealings with banks. Borrowings by state entities are governed by their respective acts of parliament and have to be approved by cabinet. Such borrowings are paid back from their own revenues. Some loans may be guaranteed by the Treasury and in such event are reported to Parliament.

The Prime Minister said during his special statement to parliament last week that he increased the salaries and pensions of public servants, and reduced the prices of fuel, gas, sugar, canned fish etc. He was claiming to have fulfilled all the irresponsible promises made during the Presidential election to win votes. The present precarious situation shows that there are serious consequences to contend with when you try to win votes by pledging the taxpayer as live collateral.

Even before the present debt crisis, the economy was in an uncontrolled freefall. The All Share Price Index has lost around 1500 points after 8 January 2015 and over Rs 600 billion has been wiped off the market capitalisation in the stock market. Foreign holdings of Sri Lanka rupee bonds have gone down by more than half during the same period. Foreign investors who kept renewing their investments when I was in power started exiting the Sri Lankan bond market after January 2015 because they have no faith in the economic management of the present government. During the first nine months of 2015, the unemployment rate increased by nearly 1%. The Rupee has depreciated more than 10%. Foreign reserves which at an all time high of 8,200 million USD at the end of 2014 have gone down to less than 5,000 million. In the coming months, all that can be reasonably expected are more tax increases, more cuts in welfare measures and increases in water, electricity, telecommunications and transport costs not to mention even more unemployment due to the continuing economic mismanagement of this government. The present government will have to be held accountable for the hardships the people will have to face.

12 Responses to “Mahinda rejects PM’s debt allegations”

  1. Dilrook Says:

    An excellent response with facts.

    In an article here in lankaweb in 2015 I listed down the UNP government’s borrowings in 2015. It’s staggering and was much higher than the average that was borrowed during Mahinda’s terms. What is most striking is Mahinda (also) borrowed for development work. There was tangible evidence of roads, port city, ports, dams, railways, stadiums, buildings, cables, etc.

    No one knows what happened to UNP government’s $6.3 billion borrowed money in 2015! What are the development work done with it? None.

    Most likely most of it would have been paid to those who spent money for the highly expensive UNP election campaigns in January 2015 and August 2015. A similar disaster happened in 2002 as the UNF government allowed unofficial and later official (was rejected by the Supreme Court) tax amnesties to those who financed its 2001 election campaign at the same time introducing VAT illegally (once again the supreme court struck down the illegal attempt). Later it was painstakingly passed through the parliament. GST was repealed as promised but VAT was imposed instead which covered more goods and services than GST.

    Mahinda and progressive politicians must campaign among expatriate Sri Lankans (especially in the Middle East) not to send their foreign currency to Sri Lanka more than they have to. Their hard earned foreign currency don’t get sufficient rupees (as the rupee is artificially kept low with Indian help) and ultimately these foreign currency is scooped up by Indian banks.

    If the rupee was floated free (without Indian currency swap arrangement), every dollar should fetch around 175 rupees, not just 145. Sri Lankan expats toiling abroad deserve it but denied by this government. The difference goes to India which is 20%. Of it 10% is accounted for by further rupee depreciation and the other 10% as interest in dollar terms.

    Taxing consumption (increasing VAT, etc.) reduces economic activity. This is exactly what the IMF advised Greece 5 years ago. IMF is a lender. The more loans it can lend the better. The higher the interest rate, the better for them. If Sri Lanka once again falls into the debt trap, IMF will celebrate as it has a captive customer. As Sri Lanka’s credit rating falls (already falling), the interest rate on loans will increase (as it is riskier for the lender). This too will earn more income for the IMF. If state banks were to be privatised (as IMF advised), there will be a mad rush to withdraw deposits before dubious private owners taken them. It will collapse financial institutions.

    Power cuts, water cuts, salary cuts and job cuts are other similarities with Greece.

  2. Hiranthe Says:

    MR is no more a worrier. He has no confidence. This could be the plan of the West and India to kill his confidence.

    He should not give statements in sundry places on such serious issues. Please take it up in the Parliament and show the world these liers have no place to hide and also they are the liers.

  3. aloy Says:

    We would very much like to hear from RW about these allegations. If the total number of those in public service is 1 million, the total that would have been paid to them due to Rs.10,000/= increase would be around $700 million over a period of about ten months at current exchange rate. If that is so, what happened to balance $ 5.6 m.? How much of that is remaining, taking into account of any loss of revenue over the previous years due to world economic situations etc?.
    Very pertinent questions to answer.

  4. Fran Diaz Says:

    Lanka Parliament is gorged to its gills with fat pay packets and subsidised food. It is a virtually dead Parliament. That is why MR speaks to the People outside of Parliament. Our heartfelt thanks to MR.

    Lanka is being governed by a few people who do not love the Land or the People.

    Yes, Lanka is being Greece-d. We said that earlier.

  5. aloy Says:

    I think the central bank should come out with facts and figures on all loans and put it in hanzard through the PM in parliament. They should also give figures with respect to huge loans given by various government controlled banks to MR cronies that cannot be recovered now.
    On another issue, I was watching a BBC world service news item a few minutes ago where they discussed the recent Bangladeshi bank robbery. They spent about five minutes discussing the incident with countries involved marked in red on a world map. It appears to me that they portray SL as a culprit from where $20m from the stolen money has been recovered. No mention of our teller stopping the operations due to a ‘misspelling’. I am sure our man would have stopped it even if the spelling mistake was not there as the recipient was an unknown quantity and $20m was a big amount. Even the current FM nearly got landed in prison some years ago due to a transaction of a much lesser amount. But now we are being branded as a bunch of robbers in the eyes of the world. They are only giving credit to a bank in Germany for stopping the robbery of $ 1 Billion. CB should come out with the true account without further delay on both these issues.

  6. Fran Diaz Says:

    Will the Governor of the Cental Bank, Arjun Mahendran, who is responsible for the Bond Scam right from the start at his job there, ever come out with the true facts ? He only does as ‘Uncle Ranil’ tells him to do.

    The Central Bank Bond scam was never investigated. Those senior Officers in that event who were witnesses (all 115 of them), were removed from their posts. The COPE members and the Commission who were responsible for uncovering the scam, were also dismissed.

    Monetary Justice &. Truth from Yahap is a daydream.

    It is up to the Jnt Opposition to bring out the truth.
    As we can see, the Yahap have so far brought out a lot of false stories or exaggerated stories about the MR govt. I am sure there were lapses, but not on the Yahap scale. Mind you, Yahap is only just starting out ! The Yahap Pinocchio Nose grows longer by the day, it seems.

    Gee, it’s amazing what short memories some folk in Lanka have ….

  7. Fran Diaz Says:

    On a related thread :

    What the US Officials have said (may not be exact words) :

    (a). Mr Joe Biden, Vice President, has advised Lanka to ‘stay simple’.

    (b). Mr John Kerry, Secy of State, has advised Lanka to “Go Green”.

    (c). Mr Shannon, State Official, has said : “We would like to see internal peace in Lanka as Lanka Ports are important for Trade Routes”.

    What does Ranil led Yahap want to do :

    (1). ECTA with India.

    (2). Bridge Tunnel (Chunnel) to Tamil Nadu.

    (3). 5,000 acre lots on 99 yr leases to foreigners.

    To whom are we listening ? Good Sense from USA, or ‘Gong’ Sense from you-know-who. ?

  8. Fran Diaz Says:

    One more from Yahap :

    (4). Colombo Mega-Polis (Police state).

  9. Dilrook Says:

    You are absolutely right Hiranthe. This great statement must have been presented in parliament because the PM’s statement was in parliament. It has entered the Hansard. On the other hand, there is no verifiable record as the Hansard of Mahinda’s statement. That questions his courage as well as truthfulness. Deliberately making a false statement with facts and figures in parliament is an offence which can be traced back. However, there is no such accountability in making public media statements. The bottomline is the Hansard will have a permanant record of Mahinda’s wrongs (as stated by Ranil in parliament) but it will not have a denial.

    It reminds of the budget debate and voting. Mahinda blasted the budget outside the parliament (with no impact) but didn’t vote against it! The fate of the new party is the same. It exists only in the media.

    Yet another example is the May 2009 Joint Statement with Ban Ki Moon where he promised 13A full implementation but denied making any such statement to local media.

    In today’s information age, people easily connect the dots. It is not good for his political career. A good politician must act with consistency inside and outside parliament and inside and outside of Sri Lanka.

  10. Dham Says:

    Agree with both Dilrook and Hiranthe.

    This is a 6.3 billion USD question, It is very serious. In any other country there will surely be many debates and lot of in the government have to go home or to jail.

    This important question shall be asked in the parliament officially so that government will have do explanations. Otherwise it is of no use.
    What is important is to make sure the government is made accountable and also to track down and force them to do the right thing. This is the duty of the opposition members.
    Another example is when Fonseka made various allegations he left the seating area and waited outside ( according to the speech).
    It looks to me like Ranil has a secret pact with Mahinda. We are being fooled.

  11. Fran Diaz Says:

    Whatever people speculate about MR, Ranil, CBK, etc., we have to acknowledge the fact that it is the TAMIL CASTE/POVERTY PROBLEMS in the North that gave birth easily to the violent LTTE and started the whole war rolling and the Tamil Diaspora has internationalised the events.

    MR : Finished the ongoing atrocities committed by the LTTE. The final war in 2009 finished the LTTE in Lanka. We are forever grateful to the MR govt & the Armed Forces of Lanka for doing so.

    CBK/RW: Prior to the final war, they held many rounds of talks with the LTTE to bring some final solutions, but failed. We are grateful for their attempts to find solutions.

    INDIA :

    * INDIA forced the 13-A on Lanka to use it as a ‘control stick’ to divide & rule Lanka. The 13-A must be removed.
    * INDIA trained the LTTE in Tamil Nadu. Now that the war has finished, Lanka authorities must never allow the LTTE to resurrect in Lanka, for the sake of us ALL in Lanka.

    The LTTE atrocities of nearly 30 yrs coupled with the two JVP uprisings (first one re Unemployment, second uprising re the illegal 13-A), these events rocked the Nation into instability, the waves yet felt even six years after the war with the LTTE finished in 2009.

    If permanent solutions are sought for Peace in Lanka, then the Root Causes must be addressed, and addressed in Parliament, and solutions found.

    Is the present govt up to it ? We think that ALL leaders are needed to bring Lanka to be cleared of FALSE war crimes charges and clear the Monetary/Fiscal matters up too, and get the Development projects rolling on their proper tracks, in a way acceptable to the masses of Lanka.

  12. Susantha Wijesinghe Says:

    PLAUSIBLE QUESTION:- WHY HAS NOT MAHINDA MENTIONED ABOUT THE CENTRAL BANK BOND SCAM ??? WHAT IS HIS FEAR ?? HAS HE LOST HIS VERTIBRAE ?? I THINK IT ENTAILS ABOUT 14 BILLION.

    AS HIRANTHE SAYS… MR IS NO MORE A WARRIOR. I FULLY ENDORSE THIS FACT. HE HAS NO CONFIDENCE. ABSOLUTELY. HE IS NOW IN A STATE OF INDECISION, ALWAYS VACILLATING. HE SAYS HE IS GOING TO FORM A NEW PARTY. WHEN ??? THEN HE SAYS I WILL NOT LEAVE THE SLFP, WHEN HE IS VIRTUALLY THREATENED AND INTIMIDATED BY SIRISENA. HIS FEAR OF SIRISENA IS GROWING BY THE DAY. HE IS ON THE VERGE OF BREAKING DOWN. I DO HOPE I AM WRONG HERE. WHAT IF I AM NOT ?

    PEOPLE ARE CONFUSED. VOTERS WILL BE RELUCTANT TO BACK HIM UP. MY POINT OF VIEW IS THAT, THEY NEVER WILL.

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