Govt. on slippery slope of debt –De Silva

The highest priced debt the Sri Lankan government has taken in its history should not be considered a victory, according to lead economist at Lirneasia, Dr. Harsha De Silva, referring to the US$500 million sovereign bond.

At a seminar on the current monetary environment organized by the Sri Lanka Ceramics Council this week, De Silva said that the economy is not booming but is in fact declining in growth since 2006 despite statements from the government saying the contrary. Throughout the years, the government has had a history of deficit spending and borrowing. "If we continue to go in this direction, we are going to crash land," he said. At best, De Silva said the government has estimated that growth will be 6.7% in 2007.

Quoting a statement made by Central Bank of Sri Lanka (CBSL) Governor Ajith Nivaard Cabraal in July 2007 as reported in The Sunday Times FT on how the economy is booming with the number of registrations of motor vehicles rising, cell phone usage expanding rapidly and the number of new apartment buildings and individual houses increasing and selling fast, De Silva said he is highlighting 'the other side of what you hear' from the government.

According to the CBSL, per capita income is approximately US$1,500 and per household income per month is Rs.57,400. However, De Silva said that according to new surveys from the Department of Census and Statistics, the monthly mean per household income is actually Rs.25,000. Moreover, he said the median per household income per month is Rs.16,494 which indicates that most Sri Lankan households earn far less than statistics cited by the CBSL.

De Silva also said that the average person is finding the soaring cost of living difficult to contend with. In 2001, the Colombo Consumer Price Index (CCPI) stood at just under R.3,000. In 2004, it had moved to Rs.3,500, a change of Rs.500. The change since 2004 to 2007, a span of 2.5 years has seen the CCPI soar by Rs.2,257.

De Silva added that savings are also declining with inflation being so at a high of 19.6% and the value of investments such as treasury bills are declining. He said the total outstanding debt as of 2007 is almost Rs.3 trillion and has increased by two thirds in the last five years and outstanding foreign debt has increased by 67% over the same period.

As to the US$500 million sovereign bond, De Silva said the government initially gave a project list of fifteen different infrastructure projects it was meant to finance over a period of five years and that the maximum annual requirement stated by the govrnment for those particular projects was US$247 million; so why US$500 million? He said that it was actually intended for day to day survival such as repaying advances from the CBSL, repaying the Treasury overdrafts of the state banks and to retire Treasury bills. In fact, some infrastructure projects such as Moragahakanda and Weheragala, cited in a CBSL press release issued on November 13 explaining the spending of the US$500 million did not appear in the issue document. De Silva said this proves that the government cannot even lie properly.

The government is on a slippery slope of debt, De Silva said. Unless structural changes in the economic policy are made, there is trouble ahead. He said the country has to be clear where it is headed over the medium term under the current economic plan and to look for short term opportunities due to interest rate volatility and exchange rate depreciation slowdowns and accelerations. (NG)