An essential requirement | Daily News

An essential requirement

Sri Lanka has an impeccable record when it comes to debt servicing. The country has not defaulted on any repayments despite volatile global and local economic conditions on some occasions. With the recent change of Government, concerns have been expressed in certain quarters and also by the Opposition that the incoming Government might not be able to fulfill debt service requirements.

However, the Government has debunked these pessimistic projections and assured all lenders that it will repay the loans that will fall due during the financial year beginning January 1, 2019, on time. The Ministry of Finance and Economic Affairs in a statement said, the Government of Sri Lanka (GOSL) has raised loans in terms of the provisions of the specific laws including the Registered Stock and Securities Ordinance, No. 7 of 1937, Local Treasury Bills Ordinance, No. 8 of 1923 and the Foreign Loans Act, No. 29 of 1957.

As such, any dues on such loans that may arise, in accordance with the respective terms and conditions attributed to such borrowings, can validly be charged on the Consolidated Fund as provided for, in the Constitution of the Democratic Socialist Republic of Sri Lanka and such specific laws as noted.

“Therefore, the GOSL wishes to assure all lenders that all such dues will be met on the due dates as has been the time honoured tradition where we have maintained an unblemished track record of debt payments. Further we wish to note that this Ministry has been closely collaborating with the Central Bank to ensure that adequate buffers are created and maintained in view of the dues that will arise in 2019 specially the repayment of the International Sovereign Bond (ISB) amounting to US$ 1,500 million maturing during 2019.”

This was rather reassuring, given the plethora of reports circulating in the traditional and social media that the Government would not be able to repay the loans this year. The Central Bank and the Treasury have assured the Cabinet that there was no threat to the repayment of process of the Government loans.

This follows a meeting and a presentation that Central Bank Governor Dr. Indrajit Coomaraswamy and Treasury Secretary Sajith Attygalle had with the Cabinet to assure the Cabinet that there were no fears of insecurity of the Government’s repayment processes on the external debt. It was a praiseworthy move on the part of the Central Bank to engage in this presentation in the backdrop of apprehensions spread mainly by the Opposition.

Accordingly, the Central Bank Governor and the Treasury Secretary had debunked to the Cabinet the rumour mills doing the rounds which claimed that the Government was in difficulty in debt repayments following Rating Agency Moody’s down degrading the rating on Sri Lanka. With reference to Moody’s, the Central Bank said it is of the view that the decision by Moody’s Investors Service on November 20, 2018 to downgrade the Government of Sri Lanka’s foreign currency issuer and senior unsecured ratings from B1 (Negative) to B2 (Stable) does not properly reflect the country’s macroeconomic fundamentals, and therefore unwarranted. The CBSL reiterated that Sri Lanka’s macroeconomic position has neither deteriorated nor has there been any policy slippage since Moody’s last rating decision in July 2018, in spite of the recent developments in the country’s political sphere.

We have often heard the term “debt trap” in recent times, particularly with regard to loans granted by China. However, emerging economies such as Sri Lanka cannot finance many projects on their own and have to seek foreign loans. Since Sri Lanka is now classified as a Middle Income country, most OECD countries do not grant aid any longer. Hence we have to seek foreign loans, sometimes at commercial rates, to finance development projects. There are many ongoing and upcoming development projects that have to be financed through loans.

It is in this context that we should laud Chinese Ambassador in Sri Lanka Cheng Xueyuan for his statement that close cooperation between Sri Lanka and China has greatly contributed towards Sri Lanka’s development. He described Sri Lanka as one of the first countries to openly support and join the Belt and Road Initiative (BRI). In the last five years, in-depth exchanges and cooperation in various fields has blossomed under the BRI framework.

The ambassador noted that the completion of the Norochcholai Power Station provided about 40% of the nation’s electricity supply, the Colombo Airport Expressway has brought great convenience to domestic and international travellers and the CICT has become the fastest growing container terminal in Asia. In fact, none of these projects would have been possible without Chinese assistance.

Speaking at the recent ASEAN meetings in Singapore, Chinese President Xi Jinping also hit out at critics for liberally using the term “debt trap” for its international assistance programme. He pointed out that the BRI would spur development in a host of nations that would otherwise lag behind in terms of development. The bottom line is that loans are essential for countries such as Sri Lanka seeking rapid development as long as the repayment process is handled well.


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