Delaying the inevitable
View(s):The government is seeking parliamentary approval for an additional nearly Rs. 400 billion in borrowing to pay off bills, Minister and Cabinet spokesman Bandula Gunawardene told reporters on Thursday.
Isn’t this a familiar theme? Didn’t we hear this five years ago too when the Maithripala-Ranil combine won power to rule the country for five years? Didn’t they too ask for more, like Oliver Twist, to pay off bills and borrowings by the previous regime?
The now familiar routine for the first few months when a new regime takes over is time spent on finding money to pay loans taken by the previous regime. It happened in 2015, leading to the infamous Treasury bond scam, and now it is happening when the Pohottuwa (SLPP) is in power. The United National Party had to raise enormous sums of money (also due to a bunching of foreign debt payments) and now the SLPP is saddled with the same problem; this has never happened before.
One large bill is payments to construction contractors for work done in government projects which as of now amounts to at least Rs. 100 billion, an issue that the construction industry has complained about for many months. If they are not paid, their suppliers in turn don’t get paid and this puts pressure on wages of workers and other staff of these companies.
As I pondered on these issues, I could hear snatches of conversation under the margosa tree by the trio – Kussi Amma Sera, Mabel Rasthiyadu and Serapina – getting together for their usual Thursday ‘chit-chat’ along with their steaming cups of tea. “Virodha dakveemata vishesa thanak dan thiyenawa (There is a special place for protests now),” said Mabel Rasthiyadu.
“Eya janadhipathi kaaryalaya idiripita virodha navathweida? Mama hithanne nehe (Will that stop protests in front of the President’s office? I doubt it),” noted Kussi Amma Sera.
“Parlimentuva idiripita me vage thavath thanak avashya-wei (They will need another place like this in front of the Parliament),” said Serapina, drawing laughter from her friends. “Aiyo, eka hondai (Aiyo, that’s good),” said an amused Kussi Amma Sera.
As I walked to my computer pondering on today’s topic, the phone rang. It was my jolly-mood economist friend, Sammiya (short for Samson) on the line. “Hello friend, how are you,” said Sammiya. “Fine, fine … long time no see. What, may I ask, is the reason for this call,” I said. “I was wondering about the Prime Minister’s recent statement where he has requested India to grant a 3-year moratorium on the repayment of loans to our large neighbour,” he said, adding: “Why don’t you write about it.”
“Coincidentally, that’s one of my topics today,” I said, adding that the PM had also said that if India allows this request then Sri Lanka can request a similar moratorium on loan repayments from other countries like China for instance.
“While the country is in dire straits, the economy is not doing too well and tax revenue is down, I doubt whether other countries will provide us this concession because Sri Lanka’s ability to pay in the future is also in doubt,” expressed Sammiya. “I would tend to agree, my friend,” I replied.
At the end of the day, postponing loans means postponing the inevitable – at some point we have to pay back the loans, now, in the next five years and/or the distant future. How does it work out? Say, we postpone the payment of US$1 billion in loans for three years. When the time comes to pay these loans, other loans that need to be paid as per the schedule (at that time) means another bunching of loans, increasing the country’s liabilities.
Then every new government will follow this practice (if Sri Lanka is able to convince the outside world to delay its repayments schedule) and bunching of loans would result in many large repayments to be made in one go, which would be too much to handle. With foreign exchange reserves scarce to pay off imports (import costs are double that of export income), it means borrowing dollars in the international market to pay off these loans as and when the payment schedule begins. Delaying payments is merely delaying the inevitable and increasing the burden. So what do we do? Reduce infrastructure development, cut government spending and increase tax revenue? Not an easy task.
For the record, the debt situation from 2005 to 2019 is as listed below, according to highly placed government sources.
When the Rajapaksa regime came into power (end 2005), the external debt was US$11.4 billion. This increased to $42.9 billion (during the time of the Maithri-Ranil regime) and by end-2018, it had increased to $52.3 billion. It reached $55.5 billion in June 2019 and by the end of 2019 it had skyrocketed to $60 billion. Foreign debt repayments over 2018-22 amounts to a $14.9 billion, according to these sources. This year alone, foreign debt repayments due are $5 billion.
As I ended the conversation with Sammiya, I could hear a different discussion taking place under the margosa tree. They were discussing the futility of providing government jobs to supporters.
For example, the government has promised thousands of jobs, most probably going to party supporters. The same applied in 2015 when contract workers, recruited by the previous regime, were sacked and newcomers appointed in their place. This often, now familiar practice which is in place, replaces workers, mostly party supporters with those with current governing party affiliations. This doesn’t mean giving hundreds of new jobs as the government professes but sacking contract workers appointed during the former regime and replacing them with supporters of the current regime. The same thing will happen in regime changes in the future.
As I wound up my column, I was watching local news on TV which showed police clashing with protestors at the now, popular ‘agitation site’ just outside the Shangri-La hotel (which has become some regular entertainment for hotel residents). In walked Serapina with my second cup of tea saying, “‘Gota balaye sitina nisa mema virodhata danwath avasan weida (Will these protests end, now that ‘Gota’ is in power)?”
“Maha mativaranaya avasan vana thuru inna (Wait till the general elections are over),” I said, wondering what measures the government will take after the election is over to get on with the urgently needed programme to develop the country.