Reply to Harsha de Silva on ‘Truth Behind the USD 6.361 Loans of the Present Government’
Posted on March 30th, 2016

Dilrook Kannangara

Rob Peter to pay Paul with a snowballing debt burden seems to be the UNP regime’s way of managing the debt crisis. In his reply, Harsha de Silva, MP, confirmed that the present government has taken USD 6,361 million in foreign loans in its fifteen-month lifespan thus far but hadn’t even built a culvert with that money.

Words and more words failed to deflect this truth and to his credit, he didn’t attempt to hide it. The $6 billion question is what happened to that money? It seems a fiscal black hole has swallowed $6.3 billion in just 15 months. At this rate, the UNP regime will amass an astronomical amount of debt of $30.2 billion by the time it will complete term in 2021 unless tragedy strikes earlier.

The breakdown of $6.36 billion is – currency swap agreement with India ($1.50 bn), International Sovereign Bond ($2.15 bn) and Sri Lanka Development Bonds ($2.71 bn).

Currency Swap Agreement – Rob Peter to Pay Paul

Harsha is correct on currency swap agreement. $400 million borrowed in April 2015 was settled in October 2015. By March 2016, what’s outstanding is $1.1 billion which was borrowed in September 2015. Therefore, the $6.3 billion figure should be reduced to $5.96 billion. Not much different; isn’t it?

However, a little careful look tells a horrifying story. $400 billion was borrowed in April 2015. To settle it in October 2015 when due, Sri Lanka borrowed $1.5 billion in September 2015. Out of it, the $400 million was settled leaving $1.1 billion loans to be settled in March 2016. In other words, the $400 million loan has increased to $1.1 billion in just six months. Borrowing more to settle an old loan is disastrous as it creates an ever-increasing debt snowball. Even more will need to be borrowed to settle the $1.1 billion, which is what the UNP regime has done.

$1.5 billion is borrowed from the IMF to repay the $1.1 billion to India. Snowballing of debt continues. The first tranche of it will be $415 million. It creates a shortfall of $685 million, which is covered by another rolling currency swap agreement with India for $700 million. Bigger new loans taken to repay old loans.

The UNP regime is ‘robbing Peter to pay Paul’. Each time debt snowballs into a larger debt. What is not considered here is the interest charge for the swap agreement. In addition to loan repayments, interest has to be paid. It worsens the debt burden without resolving it. Not even a culvert was built.

International Sovereign Bond ($2.15 bn) Loans Not Used to Build Income Generating Assets

These new borrowings were used to retire old debt. Nothing was added to the national economy or infrastructure, not even a culvert. Procrastination seems to be the solution. When and how this $2.15 billion will be repaid? Compared to IMF facilities, these bonds carry a much higher commercial interest rate (6.85% and 5.125%). Of the $2.15 billion, $1.5 billion was borrowed at a staggering 6.85% interest rate for 10 years and the remaining 615 billion at 5.125% interest rate for 5 years.

Repaying interest for 10 years at 6.85% on $1.5 billion is a massive commitment. At the end of it, Sri Lanka will pay $2.91 billion in interest and principal. $790 million will be repaid on the $615 million five-year bond.

In total, the true cost of the International Sovereign Bond is $3.7 billion.

Sri Lanka Development Bonds ($2.71 bn)

These were issued in a number of tranches at a high commercial interest rate of 6.125% over 10 years. Over the term of the bond, $4.91 billion will be repaid in interest and principal. Once again, loan proceeds went to retire old debt and no development work was completed. US government 10-year bond rate is only 1.9% in comparison.

Therefore, the total loan and interest commitment of UNP regime’s borrowings for 15 months is a staggering $9.7 billion and not even a culvert has been built from it let alone ports, airports, roads, dams, power plants or irrigation schemes. This excludes local borrowings that is close to rupees 400 billion (approximately $3 billion).

Election promise to increase salaries cost around $1 billion a year without any productivity increase. Other election sweeteners are also costing state coffers dearly. Contrary to IMF dictates, taxing consumption will shrink the economy and state revenue. How the UNP regime will handle the economic apocalypse after April 1 brought about by tax increases is yet to be seen.

6 Responses to “Reply to Harsha de Silva on ‘Truth Behind the USD 6.361 Loans of the Present Government’”

  1. Cerberus Says:

    Dilrook, You are very right. I have a bad feeling that all along the plan of the UNP was to crash the country economically and bring it to its knees. I think this was a plan from the Think Tanks all along. As soon as RW was appointed as PM, he brought the Ministry of Finance and Treasury under him, appointed Arjun Mahendran as Governor of Central Bank, and Paskaralingam as head of Treasury. So what can you expect? The massive Central Bank Bond scam, has it been investigated and has Arjun Mahendran being cleared? Why is he still the Governor of the Central Bank? The last I heard Sunil Handunetti was appointed as head of COPE to investigate and produce a report for the Parliament. What has happened?

    A possible scenario which may be a worst case, I think is to cripple the country completely so that there is rioting and chaos and then turn the armed forces on the people as the UNP did in 1988 and have a fascist type take over. RW will then be able to divide the country as agreed in the Singapore meeting with Mangala Samaraweera and give the North and East to the Tamils. RW and CBK can then take off to sunny Spain or wherever and live happily ever after.

  2. Dilrook Says:

    Cerberus, that cannot be ruled out. All regime change puppets did just that. Ukraine, Libya, Georgia, Syria, Iraq and Tunesia are essentially divided along racial lines. RW has hands-on experience doing it. Chandrika promoted her package when the military suffered massive defeats in 2000. They may even jointly share the Nobel Peace Prize for ‘ending Asia’s longest running ethnic conflict’.

  3. nilwala Says:

    Good response to Harsha by Dilrook. As Cerberus suggests and Dilrook agrees this is the standard practice of the West to bring the targeted countries to their knees fiscally and then reform everything to the advantage of the West thus tying up the indebtedness into subservience. Hopefully Sri Lanka will be prevented from doing so with the Jt Opp now receiving recognition as a legitimate Opposition group freed from the clutches of the President/PM/Speaker combo. CBK/MS are no doubt angling for the Nobel…which would be a disgrace for any self-respecting leader to accept nowadays seeing how they award this once-respected Prize.

  4. Christie Says:

    There are a lot of faceless men behind this government.

    Just before the last budget and during the establishment of the current government and the president there was a Indian looking guy with long an curled hair hovering around. I heard this guy is and Indian vermin or a Indian colonial parasite residing in the US. He as a visitor and sometimes staying in a mansion owned by a relative of Paskara Lingam. The mansion is near the Colpetty junction and has milking cows in the back yard being Hindu extremists. I hear this guy is involved in financing the current regime and the country. This guy was directly involved with running the government and its finances. Note: This guy has no connection with the Mahendrans as far as I know.

  5. Christie Says:

    It is amazing people cannot see what Indian Imperialists, parasites and vermin are doing to us.

    I am sure we borrowed Indian rupees and we are paying them with US$s from the IMF.

    Harsha De Silva is doing what India is asking him to do.

  6. Dham Says:

    Politics ( from both sides) ruining the country. People know that. No point of trying to prove which side is good for the country.

    People have not forgotten,

    1. Last MR budget gave a lot of handouts never done for 10 years.
    2. When opposition mentioned petrol prices he decreased the prices never done for 10 years.

    Results are devastating for the country. After the PRez election, illegal Ranil government reduced petrol prices further without considering income loss.
    Then came the Central Bank Robbery. Now 11% interest have to be paid.
    How about new useless appointments to high positions ? Who is paying ?

    President is saving some money by travelling in cheap first class , but his brother is making up for him.
    Despite “big talk” of “investments” nothing came.

    Then came another election creating a competition on handouts.

    It is interesting to look at the Bangladesh $ 20 million transfer on woman “Shalika” says she was expecting from Japan. Who is this woman ? This is an obvious theft still the people involved cannot be proved as thieves. They call her ‘ a struggling businesswoman” . “Shalika Foundation” was set up in Oct 2014.

    An unknown person can get involved in such a theft. Can you imagine how much theft carried out using numerous company names under different individual names ?

    Sri Lanka is borrowing money to pay thieves their salaries. That is all.

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