KAMALIKA PIERIS

We have inherited a heavy national debt, said Yahapalana. The country had a debt of SLR 9000 billion (USD 60 billion) when Yahapalana took over, said President Sirisena. Yahapalana had inherited a Rs. 482,940 million foreign debt burden which has to be settled before 2016 said Prime Minister Ranil Wickremasinghe.    We are saddled with USD 1900 million in loans, he added on another occasion,  and that excludes the loans obtained by state institutions during the Rajapakse administration. Rajapakse government took loans for white elephant projects such as an airport and a deep sea port. Both continue to incur heavy losses, Debt servicing now consumes three-quarters of the budget,  said Yahapalana in March 2017.

When the new government came to power in 2015, many hidden details pertaining to those loans came to light, said Ranil Wickremasinghe. The previous government never informed Parliament of the loans it had taken  nor were they included in records. We found that loans taken by public institutions, amounting to 960.8 billion, were not included in the public debt system.  CPC had taken Rs. 365 billion, Ports Authority Rs. 260 billion, SriLankan Airlines Rs. 212 billion, the list is too long, he said. The Sri Lanka Transport Board had not sent Rs. 13 billion it should have sent to the EPF and ETF. Departments and Ministries owed further Rs. 58.4 billion, of which Rs. 24 billion was owed by the Highways Ministry.

Opponents of Yahapalana reply that under Yahapalana the foreign debt has increased from Rs. 3113 billion in 2014 to Rs. 4,070 billion at end of September 2016. During the same period, domestic debt too has increased from Rs.4, 278 bn. to Rs .4, 959 billion. Yahapalana had said that Sri Lanka Airlines had incurred a   3.5 billion liability, experts said that Sri Lanka Airlines simply could not have incurred such a large liability.

Mahinda Rajapakse replied Yahapalana .He said that the debt inherited by Yahapalana was an accumulated debt stretching from the time of President J.R. Jayawardene in the 1970s. He pointed out that all governments borrow and the current government inherits the debt. His government had only borrowed between 1.4 billion USD to 2.4 billion from 2008 to 2014. These were not excessive amounts that could not be met.  The amount of debt a country can take on depends on its ability to pay back the loans as they become due. Whenever we took out loans they were done in carefully planned manner which is why we never had to contend with an unmanageable pilling up of debt.. His government was able to reduce the loan percentage, year by year.

Rajapaksa said the present government blamed him for obtaining unbearable loans, but they obtained more loans during last two years than his government had borrowed during its 10 years. Since January 2015 the present government has been on a reckless borrowing spree.    We did not get indebted like this even during the war. The Yahapalana government is taking on debt much faster than it is retiring the existing debts. Also Yahapalana is using these loans as a cover to borrow more and more. Rajapaksa said unlike Yahapalana his government did not take loans for consumption. He used loans to launch mega development projects, which could be used for decades. They can be seen all over the country. We finished the war and developed the country.

Nivard Cabraal, Former Governor of the Central Bank has issued a statement comparing the economy then and now. Economic growth 2010 to 2014 was average 6.8 % now it has dropped to 4.8%, he said. GDP in 2014 was a robust USD 80 billion up from USD 24 billion in 2005. Now it is USD 82.3 Billion and is getting less in 2016. Foreign reserves were at USD 8208million in 2014, up from USD 2735 million in 2005.  In 2015 it fell to USD1161 million and crashed to a mere USD 450 million in 2016. Foreign investment in Treasury Bills and Bonds was around USD 3 billion in 2014.  These investments are now only 5.5% of the total, from the earlier 11.4%. International credit rating as per Fitch was ‘positive” in 2016 and is now downgraded to B+ and ‘negative’.

Cabraal said that according to official economic data published after 2015, the previous administration transformed the 2005 US$ 24 billion Sri Lankan economy to a US$ 80 billion economy by 2014, while enhancing the GDP per capita from US$ 1,242 to US$ 3,853. Economic growth for the six years, 2009 to 2014, averaged an unprecedented 6.5% per annum.  Inflation was controlled at mid-single digits for six years from 2008 to 2014. The debt situation as indicated by the Debt to GDP ratio which was dangerously high at 91% in 2005 was skillfully managed and reduced to 70% by 2014, even while a massive infrastructure development programme was implemented.

Foreign reserves increased from US$ 2,735 million at end of 2005 to US$ 8,208 million by end of 2014, continued Cabraal. The Balance of Payments recorded a massive surplus of US$ 1,369 million in 2014. From 2006 to 2014, the rupee was maintained at stable levels, with the average depreciation of the rupee during this period being the lowest-ever since the liberalization of the economy in 1977.By end  of 2014, interest rates of all Government Securities from three months to 30 years had stabilized between 5.5% and 9.5%.

The country’s credit rating and economic outlook had improved significantly, during the Rajapakse government and foreign investors invested confidently in Sri Lankan stocks and government securities, said Cabraal. Foreign Direct Investment recorded significant growth and reached USD 1,616 million in 2014, its highest-ever in history. Overall, the economy progressed smoothly through the severe global economic, financial, oil and food crises, as well as across the major terrorist conflict and a possible bank failure. As a consequence, external and internal shocks did not penetrate into the economy, and people did not suffer any adverse effects of these mega challenges.

In contrast to this, under the current administration, economic growth has been woefully weak, and inflation has started to rise, said Cabraal. The debt to GDP ratio has escalated sharply to 76% by end 2015, and is likely to exceed 82% at the end of 2016, according to analysts. Infrastructure development has been minimal. Foreign reserves have plummeted to USD 5,453 million by end January 2017.

Cabraal went on to say, the rupee is depreciating rapidly, while the 2015 BOP deficit of US$ 1,489 million was the worst-ever in the country’s history. Interest rates have almost doubled in the last two years, adding a massive burden to the government finances. Foreign investors have pulled out more than USD 2.5 billion from government securities, with the stampede to exit continuing. The country’s credit rating and outlook has been downgraded. FDI has crashed to around USD 400 million in 2016. The stock market is in a serious downward slide, and hundreds of billions of rupees has been wiped out from the market capitalization.  In the meantime, unbearable fiscal and other burdens are heaped on the people, the private sector and the economy almost daily, even while the economy is being rocked with mega scams, scandals and losses.

Mahinda Rajapakse returned to the debate. “When we built the Hambantota Harbour they called it the biggest ever swimming pool. They said that there the Mattala airport was of no use and stored paddy in it. When we introduced a proper way of removing garbage and cleaned the environs of Colombo they called it just eyewash.

We increased the landmass of the country by 450 acres and they shouted that we were handing over the country to China. “We got the loans to develop the country and paid them. We somehow found money and completed work. We never spent time complaining of the commissions and omissions of our predecessors, Rajapakse said.

“Politicians of this government go all over the country lamenting that I obtained massive loans and landed the country in a debt trap, continued Rajapakse. Anyone can see what I did with the loans we obtained. You can go all over the country you will see the roads, bridges, harbor and airports. But what about the loans obtained by this government? Can anyone see anything it has done so far with the loans they obtained?”

For the last two years Yahapalana government has drawn twice the amount we obtained as loans but it has not started a single development project.  They are only opening the projects that we started. Worse, the development projects we initiated have now come to a standstill. .Thousands has lost their jobs.  An ICT road map was prepared years ago, nothing has been done thereafter. Observers agreed with Rajapakse .Yahapalana is only completing Rajapakse’s programme of work’ they said.  Many development projects started by the Rajapakse government have been stopped.

The reason for the economic problems now is because the Yahapalana government gave a salary hike, against all economic reasoning, as an election handout, to win the August   2015 general election. No previous government had taken such liberties with public finances for political purposes, continued Rajapakse.  “Today, people are suffering. They are struggling to survive as the government has slapped all sorts of taxes on them. They cannot bear the cost of living which is rising daily.

Rajapaksa also observed that earlier governments had established special economic zones without causing unnecessary complications.  Rajapakse had   planned to give the Chinese only 750 acres for an industrial park in Hambantota but Yahapalana government was going to part with 15,000 acres. Rajapakse had told the Chinese Ambassador, that he was against handing over Hambantota‘s agricultural land to China.

‘China should first use the 4,800 acres available for investment near the port, before looking for land elsewhere. The disruption caused to the people of the area will be immense if 15,000 acres of land were to be acquired for this purpose. The government should fill the free port with investments first before opening more zones,” said Rajapakse. In a Twitter Q&A, Rajapakse said that the Chinese themselves are concerned about how the project will be implemented, but did not elaborate further.

Milton Rajaratne compared the economic performance of the Rajapakse and Yahapalana governments, using the Central Bank Annual Reports of 2014, 2015 and 2016. Out of the 30 key economic indicators reported by the Central Bank in its Annual Report for 2016, only two are marginally satisfactory. The other 28 economic indicators are unsatisfactory compared to the Rajapaksa government of 2014.  The two satisfactory indicators are,   increase of government revenue due to new taxes, higher rates and collection efficiency. This is countered by the increase in government expenditure. The other satisfactory factor is the marginal decrease in the overall deficit which brings happiness to the IMF more than to anyone else.

On the negative side, Yahapalana has produced less in 2016 compared to 2015.  Per capita income has dropped in 2016 compared to 2015. Yahapalana government has increasingly resorted to local and foreign loans during the two year administration and pushed the debt burden of the country from 71.3% to 79.3%. Official reserves have declined to a dangerous level, the equivalent to imports of 3.7 months from 5.1 months in 2014. Due to decline in exports income the debt service ratio has also increased from 20.8% to 25%.The trade deficit has soared from US$ 8.3 billion to US$ 9.1 billion between the periods. The largely depreciated rupee has not been an incentive for the exporters and thus exports earnings has also decreased to US$10.3 billion from US$11.1 billion in 2014, continued Rajaratne.

Share market indices reflect the business environment created by the Yahapalana government. The All Share Price Index has significantly dropped from 7,299 units to 6,228 units casting doubt over investment in the capital market. The value of shares traded during this two year period also has been slashed by almost a half and non-national net purchase from SLR 21.2 billion to SLR 0.3 billion indicating less trust on the capital market and dwindling foreign exchange inflow.

Yahapalana economy has failed in many ways, concluded Rajaratne. It has failed in increasing income, promotion of exports, curtailing imports, curbing inflation, interest rates and lending rates, generating employment, increasing domestic savings and investment, attracting FDI and foreign share capital, developing capital market, controlling government debt and expenditure and many more. Those who ousted Rajapakse strongly believed that UNP has better economic knowhow and expected rapid economic development through which more employment and income would be generated. The UNP governments in the past did so.  Yahapalana has failed absolutely in bringing about the positive economic change since January 8, 2015. According to the food wholesalers in Pettah, there was a 40% drop in sales of this April compared to the previous April, Rajaratne said.