By Milton Rajaratne –
Government debt, as an important topic, was highly exploited by the Yahapalana coalition to come to power in 2015 and to remain in power during the past three years. The coalition government describes ‘Rajapaksa Regime’ as debt driven and has caused an immense debt burden on the country and its people. The Rajapaksa rule ended on 9th January 2015 and by that time (end of 2014) the total government debt stood at Rs.mn. 7,390,899. The domestic and foreign debt components remained at Rs.mn. 4,277,783 and Rs.mn. 3,113,116 respectively. As a result the debt burden of the country, as a percentage to GDP, stood at 71.3%. The per capita debt burden had reached Rs. 357,000 while the gap between per capita income and per capita debt remained as Rs. 142,000. While criticizing borrowings of the previous government, the present government has borrowed surprising amounts. This encouraged the writer to compare between the Rajapaksa and Sirisena debt regimes and to inquire into the government debt scenario analyzing its economic perspectives.
Table-1 indicates that the government debt burden remained at 71.3% at the time of Rajapaksa’s defeat. New policy measures that were introduced to overcome debt burden with effect from early 2015 have continued for good three years so far. In spite of debt curtailing alleged by the new government, the debt burden has rapidly increased from 71.3 to 79.3 within two years and it can be estimated, based on government debt statistics reported by the Central Bank for eight months until August 2017, that this figure would reach 90.0 by the end of 2017. This indicates that the debt volume prevailed by the end of 2014 would grow by an amount of Rs.mn. 4,000,000 making the total debt as Rs.mn. 11,000,000 by the end of 2017. This is a growth of almost 50% since 2014 or all time total government debt.
During the same three year period, per capita income has increased by Rs. 72,000 while per capita government debt has increased by Rs. 154,000. This reveals that as the economic growth has been much slower than the growth in borrowing. In consequence, the government debt has outgrown the per capita income at a rate of more than 200%. Therefore the gap between per capita income and per capita government debt has narrowed significantly from Rs. 142,000 to Rs. 60,000 as indicated in the Figure-2. This explains that there is a debt component of 90% in per capita income at present compared to 72% in 2014. The slow growth of per capita income is connected to economic slowdown from 6% to less than 4% between in 2014 and 2017 due to incapacity of the present economic policies. Increase in debt while decrease in economic growth eventually leads to a debt trap.
The foreign debt has grown faster than that of the domestic debt between 2014 and 2017 which is much significant in 2017. While domestic debt has increased from Rs.mn. 4,277,783 to Rs.mn. 6,000,000 which is a growth of 40% foreign debt has grown from Rs.mn. 3,113,116 to Rs.mn. 5,000,000 or 60% which is an alarming growth. This is due to new debt as well as debt adjustments to depreciating exchange rate of the Rupee. Sri Lankan rupee has depreciated from Rs. 130 per US$ to Rs. 155 per US$ by 18% during the past three year period due to poor exchange rate management and unfavorable trade balance. The increase in foreign debt component has not only intensified the debt burden but has heavily increased external dependency also. The situation has been aggravated by trade gap which in turn requires further foreign borrowing to settle it.
Government has rejuvenated its tax policy at every budget since 2015 to collect more revenue to finance government expenditure and repay debt. Government revenue stood at Rs.mn. 1,050,362 for 2014 and it rapidly increased up to Rs.mn. 1,463,683 in 2016 in response to new tax policy. Government revenue is expected to increase almost up to 1,750,000 by the end of 2017. This translates into per capita tax payment as everyone paying roughly Rs. 81,000 in 2017 compared to Rs. 50,000 in 2014. The tax burden has increased by Rs. 31,000 or 62% from 2014 which in turn has significantly pushed the commodity prices and cost of production upward. High taxes have adversely affected domestic consumption and production on the other hand. This, among other reasons, eventually has led to economic slowdown throughout the past three years indicating policy failure of the coalition government.
This brief analysis compares government debt, its composition, trend, and ratios between two administrations since 2014 and 2017. The findings primarily nullify the claim of the coalition government that Rajapaksa rule has overloaded the country with debt. And thus it should be understood that that claim is only as a political propaganda of the coalition government. Statistics prove that if Rajapaksa government were a debt regime, the coalition government is a hyper-debt regime. The policies of the coalition government implemented during the past three years have resulted in mega debt causing bankruptcy danger, narrowed per capita debt-income gap, increased foreign debt dependency, heavy exploitation of people through tax, lack of investments in economic services, spending borrowings for consumption, and collapse in economic growth. These are only a few symptoms; the ailment is more complicated and serious.