{"id":43556,"date":"2015-05-01T15:54:22","date_gmt":"2015-05-01T22:54:22","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=43556"},"modified":"2015-05-01T15:54:22","modified_gmt":"2015-05-01T22:54:22","slug":"sls-external-debt-service-ratio-heading-for-danger-zone","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2015\/05\/01\/sls-external-debt-service-ratio-heading-for-danger-zone\/","title":{"rendered":"SL\u2019s external debt service ratio \u2018heading for danger zone\u2019"},"content":{"rendered":"

By Ifham Nizam \u00a0<\/span>Courtesy Island<\/em><\/span><\/h2>\n

As the Central Bank of Sri Lanka readied to receive the first USD400 million tranche from India, a top Lankan economist warned that the country\u2019s external debt service ratio is moving towards a danger zone and has already entered the statistical \u2018amber-light warning zone\u2019.<\/p>\n

Pathfinder Foundation, deputy chairman, economist Dr. Indrajit Coomaraswamy, in his comprehensive presentation on “Power and Energy” at a workshop titled `Downstream Petroleum Industry \u2013supply, quality, pricing and regulatory issues\u2019 at the Kingsbury on Monday also revealed that Sri Lanka urgently needs to promote both FDI and an export-led growth model to stabilise at an eight per cent GDP growth rate.<\/p>\n

The warning on increased foreign borrowings came as Sri Lanka\u2019s Central Bank readied to receive the first USD 400 million tranche from India under a “currency swap agreement” with the Reserve Bank of India to stabilise the rupee and promote exports.<\/p>\n

“Over the last five years, Sri Lanka\u2019s growth model has been based on commercial external borrowing \u2013 led infrastructure development. The headroom for continuing this model is now severely constrained due to the fragile debt dynamics.\u2002 The debt to GDP ratio is 75% – countries with the same rating as Sri Lanka have a median of 44%.<\/p>\n

“External debt service ratio is 25% – the \u2018rule of thumb\u2019 is that anything above 20% is \u2018amber light territory\u2019 said Coomaraswamy.<\/p>\n

Sri Lanka\u2019s external debt has been climbing steadily due to increased foreign borrowings. In 2013 external debt stood at USD 39 billion. In 2014 Sri Lanka\u2019s exports of merchandise and services were recorded at USD11.9 Billion. Also merchandise only exports for January and February stood at USD 1.75 billion.<\/p>\n

“Total debt servicing absorbs all government revenue. This means that every cent of public expenditure beyond debt-servicing has to be financed through domestic and foreign borrowing. The new growth model would need to be private investment \u2013 led export expansion. FDI would have to play a major role he added. Coomaraswamy also said: “If one is to achieve the growth target of 8%, one requires investment to be 34% of GDP. It is currently 29 %. Given the country\u2019s debt dynamics the shortfall of 5% of GDP is best filled through non-debt creating flows, particularly FDI. The other option is to squeeze consumption which is not politically feasible in a democratic system. The challenge will be to increase FDI from its current USD 1 billion level to about USD $3.5 \u2013 4 billion a year.<\/p>\n

“Not only does FDI fill the savings \u2013 investment gap but it also brings with it technology, markets and knowledge. With a domestic market of 21 million people, one cannot sustain accelerated 8% growth for 10 \u2013 15 years without export expansion.<\/p>\n

“All the successful countries in East and South East Asia have adopted the export \u2013 led growth model. It is important to sustain 8% + growth over 10 \u2013 15 years or even more. This was achieved by these successful countries. China achieved an average growth rate of 9.3% over the last 30 years \u2013 unprecedented in human history. Sri Lanka has proximity with India and excellent relations with China which can and should be leveraged.”<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Ifham Nizam \u00a0Courtesy Island As the Central Bank of Sri Lanka readied to receive the first USD400 million tranche from India, a top Lankan economist warned that the country\u2019s external debt service ratio is moving towards a danger zone and has already entered the statistical \u2018amber-light warning zone\u2019. Pathfinder Foundation, deputy chairman, economist Dr. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-43556","post","type-post","status-publish","format-standard","hentry","category-forum"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/43556","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=43556"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/43556\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=43556"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=43556"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=43556"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}