{"id":53388,"date":"2016-03-30T22:25:04","date_gmt":"2016-03-31T04:25:04","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=53388"},"modified":"2016-03-30T14:43:22","modified_gmt":"2016-03-30T21:43:22","slug":"reply-to-harsha-de-silva-on-truth-behind-the-usd-6-361-loans-of-the-present-government","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2016\/03\/30\/reply-to-harsha-de-silva-on-truth-behind-the-usd-6-361-loans-of-the-present-government\/","title":{"rendered":"Reply to Harsha de Silva on \u2018Truth Behind the USD 6.361 Loans of the Present Government\u2019"},"content":{"rendered":"

Dilrook Kannangara<\/strong><\/em><\/span><\/h2>\n

Rob Peter to pay Paul with a snowballing debt burden seems to be the UNP regime\u2019s 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\u2019t even built a culvert with that money. <\/strong><\/p>\n

http:\/\/www.dailymirror.lk\/107531\/truth-behind-the-USD-loans-of-the-present-government <\/a><\/p>\n

Words and more words failed to deflect this truth and to his credit, he didn\u2019t 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.<\/p>\n

The breakdown of $6.36 billion is \u2013 currency swap agreement with India ($1.50 bn), International Sovereign Bond ($2.15 bn) and Sri Lanka Development Bonds ($2.71 bn).<\/p>\n

Currency Swap Agreement \u2013 Rob Peter to Pay Paul<\/u><\/strong><\/p>\n

Harsha is correct on currency swap agreement. $400 million borrowed in April 2015 was settled in October 2015. By March 2016, what\u2019s 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\u2019t it?<\/p>\n

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.<\/p>\n

$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.<\/p>\n

The UNP regime is \u2018robbing Peter to pay Paul\u2019. 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.<\/p>\n

International Sovereign Bond ($2.15 bn) Loans Not Used to Build Income Generating Assets<\/u><\/strong><\/p>\n

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.<\/p>\n

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.<\/p>\n

In total, the true cost of the International Sovereign Bond is $3.7 billion.<\/p>\n

Sri Lanka Development Bonds ($2.71 bn)<\/u><\/strong><\/p>\n

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.<\/p>\n

Therefore, the total loan and interest commitment of UNP regime\u2019s 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).<\/strong><\/p>\n

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

Dilrook Kannangara Rob Peter to pay Paul with a snowballing debt burden seems to be the UNP regime\u2019s 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\u2019t even built a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44],"tags":[],"class_list":["post-53388","post","type-post","status-publish","format-standard","hentry","category-dilrook-kannangara"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/53388","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=53388"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/53388\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=53388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=53388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=53388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}