Chartered Accountant Harsha Gunasena
Trade loans account for about 50% of Sri Lanka’s public debt. China 10%, Asian Development Bank 13%, Japan 10%, World Bank 9%, India 2%. However, there is an opinion that the crisis faced by Sri Lanka due to foreign debt is due to Chinese debt. In China, they lend about 10% of the total debt. But there is a special point here that Sri Lanka is now a middle income country. Sri Lanka was transformed from a low income country to a middle income country around 2007. Back then, as a low-income country, we got long-term loans at low interest rates. Also, it was with a grace period that the loan principal was received. During this time there was a situation where it was possible to pay only interest and not to repay the loan. This grace period is about 25 years. But once Sri Lanka becomes a middle income country we will not get these advantageous loans.
After this situation we had to go for trade loans especially in 2007. That is, the government issues bonds in dollars, then buyers buy bonds in the international capital market, and sometimes the interest rate on the bonds is about 6% of the US dollar, which is a little more, and that’s the amount of debt. The other is that the loan repayment period is one year. It could be 5 or 10, so I’m going to have a harder time after 2007 than I did then. By 2007, our country’s trade debt was less than 5%. But now it has reached 50% or more of the total debt.
As far as our country is concerned, our economy is facing two major problems, one of which is the budget deficit. That is, every budget except two years after independence is a budget deficit. That means we as a government spend more than the government receives. Then the government will take loans to cover the excess expenditure. Then, when the time comes to repay these loans, I will present a budget that will be more expensive than the income next year, and then I will take a loan again to repay the loan. Because the income cannot cover the debt because the expenses are high. But this situation will be alleviated to some extent when we invest the money we spend more appropriately and achieve economic growth.
The other thing is that in the long run, our country has more imports than exports, and therefore other costs for imports. For example, in 1990, export earnings accounted for about 30% of the country’s GDP. By 2019, it has dropped to 23%. On the other hand, the country’s tax revenue was 19% of GDP in 1990, but by 2019 it had dropped to 11.55%. Then exports have decreased compared to the GDP. Also, tax revenue has decreased. Then when this situation continues we need to know that our country is heading for a major debt crisis. Now this situation is being used by the governments of our country in a very unfortunate manner. This government has become like this due to the actions of the previous government.
In addition, politicians make false promises to give this to the people of the country. Then in this situation all that a country has to do is explain this situation to the people and solve the problem. Because the help of the people is needed to recover from this situation. However, the government and all political parties criticize other parties for lying and cover up the situation. The result of this is being received by now.
The cause of the serious crisis facing this government is not the fault of this government itself. There were some mistakes in the previous government as well. That is to increase tax revenue but after this government came to power this tax revenue was removed. As a result government revenue fell sharply. And the corona has made this situation even more difficult. Under these circumstances the present government has stated that they will not receive any assistance from the International Monetary Fund. On a number of previous occasions, in 2015 and 2019, the government borrowed money in the short term to cover the account balance crisis. So in this case the present government states that it will not take loans from the International Monetary Fund.
In addition, there is another way to get an answer to this problem, which is to take a short-term loan from China and India. But India has handed over lending to this method to the International Monetary Fund. So now China expects a $ 1.5 billion loan. The other thing is that Sri Lanka has been downgraded in the recent international credit rating, which may be against us but it is not effective. Due to this downgrade, loans through bonds are given at higher interest rates, so we need to get out of this, for that we need to increase the export economy and reduce imports. This is a short term solution that can get results and we need to increase production as a long term solution. We need to increase exports to increase government revenue over expenditure. How to increase exports? It is necessary to increase exports by providing basic capital to small scale entrepreneurs.