19 October, 2019

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All Borrowing Since 2016 Used To Settle Rajapaksa Loans

By Mangala Samaraweera

Mangala Samaraweera | Finance Minister

On 9th January 2015, as the Rajapaksa family took-off to Medamulana, they flew past many of their white elephants. In Colombo, it was the Lotus Tower. As they landed, the empty and unused Mattala Airport, Hambantota Port, Cricket Stadium, IT Park, Cinema Park and Conference Hall must have come into view.  

The Treasury Building – the nerve center of Sri Lanka’s economy – probably went unnoticed. That is no surprise. For inside its books and coffers contained a rather inconvenient truth. And a tragic one. The Rajapaksas left Sri Lanka in a debt trap. The Rajapaksas borrowed more foreign debt – at higher interest rates – than any previous government. That would not have been such a complete disaster if the debt was invested in high-return projects. Instead these expensive funds were spent on White Elephant construction and consumer imports. 

When the Rajapaksas assumed office in 2005, government debt per citizen was Rs. 113,131. When they left it was Rs. 355,708. The real picture is even worse. Until 2007, virtually all of Sri Lanka’s foreign debt was on concessional terms. But from 2007 onward, Sri Lanka started to commit the ‘original sin’ of borrowing in a foreign currency loans on expensive commercial terms. In fact, in 2013, the Rajapaksa government directed the National Savings Bank to obtain $750 million from international markets at the highest ever interest rate of 8.9 percent. This is at a time when the global benchmark rate for that type of loan was 1.3 percent. The Chairman of NSB at the time, a respected civil servant, was removed and replaced with a batchmate of the then Treasury Secretary on the instruction of the then Finance Minister, Mahinda Rajapaksa. 

2005 2010 2014 2018
Government debt per citizen (LKR) 113,131 222,019 355,708 552,724
Primary Surplus, % of GDP -2.1 -1.5 -1.5 0.6
Exports, goods and services, % of GDP 32.3 19.6 21.1 22.8
FDI (USD Mn) 272 516 1,635 2,136

The irresponsibility and mismanagement does not end there. While the government went on a borrowing spree on international capital markets, government revenue plummeted. In 2005 Sri Lanka’s tax-to-GDP ratio was 13.7 percent. By 2014, it was 10.1 percent, one of the lowest in the world. As a result, expenditure necessary for long-run growth such as health and education suffered. And Sri Lanka needed to borrow more just to repay the Rajapaksa loans. 

In 2014 interest payments amounted to Rs. 436 billion, 24 percent of government expenditure. But because of all the Rajapaksa debt, especially expensive foreign debt, today interest payments are 31% share of government spending. In order to pay salaries, keep the lights on in hospitals and run the country we have had to borrow just to pay back our old loans. The whole country should know that since 2016, all the money we have borrowed has been to pay back old loans.  

Perhaps worst of all, the much anticipated post-war boom never materialized. Sri Lanka lost GSP+ and a fish export ban to the EU was imposed. We were on the verge of targeted sanctions. The words “human rights abuse”, “war crimes” and “dictatorship” were the words associated with Sri Lanka in the international media at that time. The illegal ouster of the Chief Justice, expropriation of private property, stock market pump-and-dump and culture of bribery and impunity forced foreign and local businesses to invest elsewhere. Vietnam, Bangladesh and Ethiopia prospered. We stagnated. 

There is no better example of the Rajapaksa’s mismanagement than airlines and airports. They took a profitable, well-managed and rapidly expanding airline and ran it to the ground. After they nationalized Sri Lankan because the CEO did his job and followed the rules, it made consistent losses. The lease agreements they entered into are so draconian that the airline will post losses for some years to come. And the less said of Mihin Lanka the better. Mattala Airport was built using 209 million dollars of foreign loans. Loans we still pay interest on. Yet the airport has been empty for years. 

What right does a President responsible for the hedging scandal, Greek investments scandal and the most corrupt and wasteful administration since Independence have to talk about handling state finance?

Despite this legacy, we have stabilized the economy. Last year, Sri Lanka had its first non-trivial primary surplus in 63 years. This means that, leaving aside interest payments, Sri Lanka’s revenue was greater than its expenditure for the first time in over six decades. No other government has succeeded in achieving this target. This also means that, since 2016, all government borrowings have been used to settle debt. Not for any other expenditure. 

Despite the coup and the Easter bombing the economy has held-up. We have put some key fundamentals in place. Government revenue, measured as a percentage of GDP, is up by 16 percent from end-2014. Exports, again as a share of GDP, rose from 21 percent in 2014 to 23 percent today. Capital expenditure on health doubled and no government increased education spending as quickly and as substantially as we have.  

There have been countless infrastructure projects: the Moragahakanda and Kalu Ganga Dams and irrigation schemes, and Uma Oya multi-purpose development project. Under the Gampereliya scheme, more than 105,000 projects were implemented across 160 electorates. To date, nearly 40,000 roads and bridges have been built to facilitate rural and urban transportation. Nearly 1500 projects have been implemented across the island to renovate or construct sanitary facilities in schools. Enterprise Sri Lanka has disbursed nearly Rs. 65B in the form of concessional loans to entrepreneurs in the country, with capital flowing into sectors including agriculture, services, and manufacturing for the domestic and export markets. The LRT and Colombo Elevated Highway will go a long way to solving traffic problems in the city. 

As you all know, government salaries have more than doubled, in addition to the 2500 rupee allowance. From 1st January, the Presidential Commission Report on salary anomalies will be implemented. And perhaps the greatest benefit of all is the control of inflation – the cost of many essential goods including food items and fuel have fallen. 

Loan amount (USD) Interest rate Share of Samurdhi budget 

(2018)

Mattala Hambantota International Airport – Stage 1  243.7 million 2% 100%
Hambantota Port Development Project – Phase II  1,651 million LIBOR + 4% 678%
Lotus Tower 104 million LIBOR + 4% 43%
Sooriyawewa International Cricket Stadium* 25 million ~3% 15%

*See Auditor-General’s 2017 Annual Report for details. Rupees converted to USD at 2017 FX rates. Interest estimated using 10-year repayment schedule.  

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Latest comments

  • 6
    1

    why are you not taxing the rich more?
    you promised 60 40 ratio of direct to indirect taxes
    however it is still 20 80
    how can you increase revenue to pay off debts unless you do so

    • 7
      6

      Samaraweera,
      *
      You did the same things they did. Only their’s are tangible ones so you can point fingers at.
      Your’s built castles in the air on the Indian continent with fingers crossed that it will one hopeful day come to tangibility. Trouble is, India’s move from poverty has reached its peak. No more can be done with them except at the expense of gross pollution, global warming, deadly population reduction, and another 200 more Indian Oligarchic Kleptocrats.
      *
      Both Rajapaksas and you used Keansian capitalistic model to build up country capital from thin air. They also tried to do it by giving the money of the masses freely for business creation. Did not work! You did it by placing all KINDS of soverign bonds on that ETCA agreement. Ok, you did well with the rural scene. They did too. Actually it was the money of the hard working middle-east workers that did it.
      *
      Isn’t it time now to consolidate the little we might have left and focus and build from inside out? That’s the only way we can finally get over the debt traps. Join the JVP. Usher in a new era of possibility. You will do brilliantly for the country from over there.

  • 1
    3

    Samaraweera,
    *
    You did the same things they did. Only their’s are tangible ones so you can point fingers at.
    Your’s built castles in the air on the Indian continent with fingers crossed that it will one hopeful day come to tangibility. Trouble is, India’s move from poverty has reached its peak. No more can be done with them except at the expense of gross pollution, global warming, deadly population reduction, and another 200 more Indian Oligarchic Kleptocrats.
    *
    Both Rajapaksas and you used Keansian capitalistic model to build up country capital from thin air. They also tried to do it by giving the money of the masses freely for business creation. Did not work! You did it by placing all KINDS of soverign bonds on that ETCA agreement. Ok, you did well with the rural scene. They did too. Actually it was the money of the hard working middle-east workers that did it.
    *
    Isn’t it time now to consolidate the little we might have left and focus and build from inside out? That’s the only way we can finally get over the debt traps. Join the JVP. Usher in a new era of possibility. You will do brilliantly for the country from over there.

  • 9
    3

    why don’t you guys sue the Rajapaskes and put them behind bars?
    you dona have back bone or scared of white vans?

  • 6
    2

    increasing salaries of public servants will only make the situation worse as milinda moragoda has pointed out
    you have to do very much more to pay off rajapaksa debt
    try reducing the perks of mp’s which ranil increased exponentially

  • 9
    6

    complete rubbish . Not only did you not pay those loans but you also spent more and in the process did not even do anything significant. you deserve the dustbin of history where you all should be confined to be for the rest of eternity.

  • 3
    1

    There are numerous documents circulating in the social media showing how low the current GDP growth rate compared the previous regime. it will be interesting if the charts could be prepared and shared with the voters (English and Sinhala media) to show that in spite of pumping Bn’s of borrowed capital to finance the white elephants and other mega infrastructure projects the MR regime hasn’t been able to maintain a steady GDP growth as one years of high growth could be just an outlier. Also interesting is that the current GDP is in spite of meeting the part of the principle payment and also the battling the continuous rally of the strong US$.

    • 10
      6

      Yamapalanaya,
      Before the election Harsha said they know how to fix the economy. After four years the economy is in shambles. The only business that has thrived under this Government is drug business. All the others are facing enormous difficulties. It looks like the policy of this Government is to ruin the economy.

      When they participate in TV discussions UNP politicians brag about improvements in Democracy, Human Rights, Freedom of Expression and Independence of Judiciary as achievements of Yahapalana Government. These things may be good for Colombo Toiyas but not for ordinary folks because these things do not put food on the table of ordinary folks.

  • 7
    3

    This is a good start Mangala, but you need to get some competent people around you to translate this potent lesson (that only a few will understand) into several simple messages that the masses can comprehend, and then make these one of the main themes of the Sajith P platform to be delivered during the next few crucial weeks.

    A simple correlation of politicians’ thievery to the mahajanaya’s buth pingaana, increase of housing and transport costs, lowering of expenditure allocations to education and health services and gradual erosion of everything else including the profile of our dear country on the international stage, will I believe, go a long way towards educating our people to recognise how, over the years, crooked politicians (including buggers like Ravi K from your own fold) enrich themselves at the cost of the nation and its people.

    We also need to educate our people to demand more from our rulers and stop treating them like gods.

    Will it happen Mangala? I hope Sajith P can also take this on board to consign the horrible Rajapakse regime and its sycophants to the dustbin of history.

  • 4
    1

    What matters is majority of Sri Lankans thinks. We saw that in elections last years. UNP lost the election badly. It has gone bad to worse now. It is too hard to predict who will be our next president. It is all because of behaviour of current government. There must be a reason why MR is gaining popularity everyday.

  • 0
    0

    Math and election equation which going tip the dynamic is minority votes. No way the minorities going vote for Gota.

  • 5
    0

    Why can’t Mangala talk about who and who got checks from CB looting?

    Mangala is World’s greatest liar. A pretty good match 7 balance for Old Royals on that.

    The chameleon is the witness for fence have eating the crops. Mangala is bring the Central Bank numbers to prove his story. Did Central Bank released any real numbers for the last 15 years? If so, then why Mangala could not explain the country how Old Royals sent out $18B, which Managala helped to Old Royals to block IC spotting and nationalsing. Mangala made the country get listed as safe haven for Money Laundering.

  • 0
    0

    Hay Mangala,
    Don’t lie to us at this election time. Your government borrowed US$ 26 billion and there is nothing tangible and/or profitable that you had done with that huge amount of money. You have just increased and expanded your UNP’s comfort zone by giving luxury life (Benz cars, villas, condos, to your cabinet colleagues, MPs, henchmen, and cronies) whereas the general public and others struggle to survive another day. Get the hell out of your Mercedes Benz that you use with our money and look around, If you have an iota of brain you will see the suffering of this nation.
    Now it is our time and we will respond and make sure your guys would no longer lie to the people of this country.

  • 0
    0

    latest opinion poll
    GR-44 SP-42.5 AKD-7.5 OTH-6
    TCP GR-50.5 SP 49.5
    Sample size 2500
    MOE 2.5%

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