Sunday Times Editorial
As the Jayamangala Gaatha and Sri Lanka Maatha in both Sinhala and Tamil were sung, the spit and polish of the military parade, parachute jumps, the fly-pasts and fireworks display celebrating the 69th anniversary of Sri Lanka’s Independence concluded, it is time to sober up and face up to the realities facing this country’s seventh decade of regaining freedom.
It was political independence that the people achieved in 1948. The umbilical cord with colonial rule was only severed in 1972 with the country becoming a Republic, an event no longer even celebrated in Sri Lanka. But is the country truly Independent?
When Sri Lanka regained its political independence, the economy was in a relatively healthy state and the country’s first Finance Minister J.R. Jayewardene presenting the first budget to the then House of Representatives proudly said Sri Lanka’s revenue at the time was Rs. 441.5 million and expenditure Rs. 435.5 million – a surplus budget, it was. He asked the question: “Are we making the best use of the money that flows into our Exchequer and that too for the benefit of the humblest and the lowest”.
The country had a Gross National Debt at the time. Rs. 469 million. Public Works loans, Home loans, War Savings loans — all with a view to checking inflation, wartime defence expenditure and post-war development that had to be met. Quoting the Buddha, ‘JRJ’ explained how a people must divide their income; firstly, to maintain themselves and their families, secondly and thirdly, spend on future investments, and fourthly, save for times of depression.
How far has this nation travelled since? Today, Sri Lanka is engulfed by a debt- trap, the likes of which have not been seen ever before. Come 2019 – just two years from now, and this country is going to be in very serious trouble as it tries to disentangle itself from an economic Gordian knot of immense proportions.
The main source of the debt crisis lies in the previous Mahinda Rajapaksa Administration’s hunger for huge commercial borrowing to cover budgetary shortfall and financing of economically questionable projects at high cost with what is commonly known, but still to be proven, large built-in kickbacks and commissions. The country is now paying for the highways that could have been paved with gold considering the expenses that went into them, ports and airports that were speedily built and are now in-situ with very little that can be done other than to make them somehow viable. Playgrounds were built in the middle of nowhere with funds from the Ports Authority and the Central Bank purchased properties abroad and hired public relations firms with nobody’s by-your-leave. Downright economic mismanagement of the present Administration has compounded the problems with additional borrowings in 2015, 2016 and one due in 2017 which will surely exacerbate the debt crisis in the years to come. The country is living not just on borrowed money, but on borrowed time.
The debt jam will persist in the coming decade. But it is the year 2019 that will be critical for the country when US Dollars seven billion has to be found to cover loan repayments and a balance of payments deficit. Some countries kept giving loans probably knowing they can get a strangle-hold on the country for strategic reasons. The International Monetary Fund (IMF) programme negotiated in 2016, comes with stringent conditions, and provides US dollars 1.5 billion spread over four years, but it is simply insufficient to make up for the US dollars seven billion shortfall by 2019. The IMF’s recent report on Sri Lanka’s economy is very clear; the Government of Sri Lanka will have to borrow US dollars 2.5 billion in 2019 on high-interest commercial terms if it has to tide over the problem. It is almost a case of having to borrow from Peter to pay Paul. There is no fallback position, essentially throwing Sri Lanka to the wolves.
In this ghastly debt scenario, the whole machinery of the government including the Ministry of Finance, the Central Bank, the President’s and the Prime Minister’s Offices seem blissfully unprepared to meet the challenge of the enormous magnitude of the debt crisis in 2019, and post-2019. Instead, they offer the country piecemeal proposals every other day, ranging from tourism earnings potential, forthcoming foreign direct investment (FDIs), the virtual sale of the Hambantota harbour and other assets, a flexible exchange rate, a reduced budget deficit, further heavy-handed IMF solutions, etc. None by itself would untie the Gordian debt knot unless a comprehensive debt restructuring strategy is put into operation.
Does the Government have such a comprehensive debt restructuring strategy? Not that we are aware of. The Finance Minister in an interview with this newspaper puts a brave face but admits to the existence of a problem and blames the previous Government for the present debacle. But that is not a state secret. What is important is; what’s the escape route? Hopes that the IMF or international economic consultants will sort out the problem are far-fetched and too dangerous a ‘strategy’ to rely on.
The so-called Joint Opposition goes one better. Its proposals, if any, stemming from its utterances espoused vocally at the Nugegoda rally are of no help. Having created the economic tangle the country has got into, it speaks only of non-economic solutions that could send the country on a further downward spiral of political and economic doom. Such a course can even lead to the increasing likelihood of disengagement from our international partners in this kind of environment.
One can be sure though, during the relentless debt crisis, the long-suffering masses from the working poor to middle classes will be called upon once again to tighten their belts very soon with the prospects of seeing the light at the end of the tunnel. The chattering classes including the politicians, the rich and the upper middle income groups will remain unscathed and offer us newer solutions to reach economic nirvana, but where will the “humblest and lowest” whom J.R. Jayewardene referred to in 1947-48 be?
Then, the country has to brace itself for the United Nations Human Rights Council (UNHRC) breathing down its neck; the European Union (EU), whose own future is now on shaky footing, imposing what it calls are “Areas of interest” – a euphemism for “conditions” to grant duty free concessions for Sri Lankan imports; the US increasingly closing its doors to helping economically developing countries – the Finance Minister aptly refers to the country being a leaf in the windy global environment.
In search of the pot of gold, or just to survive, the country is adopting a ‘no questions asked’ policy for foreign investors, however dubious their track record, even though the Finance Minister denies it. Sri Lanka’s total debt is US dollars 70 billion, half of which is serviceable with low interest rates from the World Bank etc., but 10 per cent of this amount is owed to China at high interest rates. The country’s debt to GDP ratio stands at 75 per cent and over 75% of all Government revenue is going for debt repayments – more than 1/3rd to service Chinese loans.
Under this Government, even without major projects initiated, the domestic debt grew by 12% and foreign debt by 25%. As we celebrate 69 years of Independence, we might ponder how independent we really are, and how dependent we will be.