Juggling dollars and borrowings
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Borrow, borrow and borrow until the cows come home! This was how my jolly-mood economist friend Samiya (short for Samson) described the country’s parlous financial state. Sri Lanka is borrowing dollars, borrowing Chinese and Indian currency loans and also selling its gold reserves.On Thursday morning, as we chatted, he was not in a jolly mood. He was angry. “For how long can we go on like this – borrowing, borrowing and borrowing? To settle an outstanding payment, we have to borrow. To pay for essential imports, we have to borrow. When will it end,” he asked in exasperation, adding that all governments have faced this situation.
“I suppose we don’t have any choice. Even if we restructure our debt as some economists suggest as per our foreign debt is concerned, we have to pay these loans and borrowings someday. We are just delaying the inevitable. It is the next generation and the generation that follows who would be saddled with these debts for a long, long time,” I said, expressing the same alarming sentiments. Is the government listening to these sentiments? I wondered. Maybe yes, maybe no.
However, we can derive some satisfaction since this column last week raised concerns by opposition legislators and trade unions of the government dipping into the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF) through the 25 per cent Surcharge Tax, a move which the government is not going ahead with now. Thankful for these small mercies when the government, though grudgingly, bows to the will of the people.
The next big ‘finding dollars’ bill is for the imports for the New Year (Avurudu) season which comes in late February/March purchases, while the government also has a US$1 billion payment of an international sovereign bond (ISB) due in July. These additional pressures on the country’s finances and scarce dollar availability particularly to pay for key fuel imports – which is affecting power generation – also figured in the discussion with Samiya.
The dollar crisis, suggestions to restructure loan payments and instead use the scarce dollars for urgent essential goods, the forex shortage affecting fuel imports and the Central Bank rebuttals of the ‘agents of doomsday predictions’ have dominated the news for the past six months. There are queues still for milk powder, while the queues for cooking gas have eased.
In terms of borrowings, at the end of April 2021 (the latest figures contained in the Finance Ministry’s website), total outstanding external debt of the government was $35.1 billion. The ministry said that market borrowings represented 47 per cent of this figure during this period, the ADB 14 per cent, Japan and China 10 per cent each, the World Bank 9 per cent and India 2 per cent, while China represented a sizable portion.
According to the latest Central Bank foreign trade data for 2021, the export income was $12.5 billion while the import cost was $20.6 billion and the trade deficit at $8.1 billion with the government managing to somehow raise $20 billion for its import bill though part of it would have come from the dwindling foreign exchange reserves.
The Central Bank also said that with the repayment of ISBs totalling $2.5 billion from January 2020 onwards, the total outstanding ISBs have now reduced to $12.55 billion and will reduce to $11.55 billion by July 2022, “broadly in line with the Government’s strategy to reduce ISB debt gradually to around 10 per cent of GDP”.
As I reflected on these key fundamentals in the economy and the authorities’ struggle to find dollars, pay foreign loans and raise local funds for recurrent spending and capital spending, questions emerged as to the government’s priorities in spending. For example, while the country is juggling with its scarce financial resources, the authorities are spending on grandiose projects like the 100,000 development projects which is an initiative with an eye on elections and also on costly road building projects when these funds should be saved for essential goods and services. There was also a proposal to beautify 200 towns.
A large segment of the 100,000 projects across the island were to have been funded from the Surcharge Tax which is targeted to raise Rs. 100 billion and of this Rs. 62 billion alone would have been generated by taxing the EPF. Now that the EPF is to be exempt from this tax, from where will the government raise these funds? More taxes or printing money?
The critical situation of the country’s financial health also led to Fitch Rating, in a statement on Thursday, saying that they expect Sri Lanka’s economy this year to weaken and grow by only 2 per cent. Such a statement is sure to draw a sharp rebuttal from the Central Bank which has been daggers drawn with international rating agencies whenever the country’s rating is downgraded and for other comments seen as ‘negative’ and affecting the country’s standing in the international financial arena.
Whew! Realising this was a heavy column this week on numbers, numbers and numbers, I walked into the kitchen to pick up something to eat for breakfast when I was distracted by the trio’s conversation under the margosa tree. They were talking about ‘Hingga Pala’, a 30s’ something beggar who often comes down the lane asking for money or something to eat. “Aney, aney, mama Hingga Pala gen ahhewa aei rassavak karanne nethuwa, hinga kanne kiyala (Aney, aney…..I asked Hingga Pala why he has to beg without doing a job),” said Kussi Amma Sera.
“Eyage uththare thama rassavak hoya ganna eka amarui kiyala. Eth eka boruwak, kammeli kamata inne (His answer is that finding a job is difficult although I believe this is just an excuse for being lazy),” noted Serapina.
“Api eyata kiyamuda waththa sudda karanna kiyala, nethnam monawa hari wedak karala denna kiyala. Ethakota hinga kanne nethuwa, wedak karala salli hoya ganna puluwan (Should we ask him to clean the garden or do some other work around the house. Then he can earn some money by working and not begging),” added Mabel Rasthiyadu.
“Ena saere me peththe apuwahama, api eyata weda hoyala demu (Let’s find some work for him when he comes the next time),” said Kussi Amma Sera.
As I walked back to the office room to complete the column, Kussi Amma Sera followed with my second mug of tea, asking, “Sir, apita puluwanda monawa hari wedak hoyala denna Hingga Palata (Sir, could we find some work for Hingga Pala)?”
“Nisekavama (Sure),” I replied, realising what a laudable gesture it is to transform a beggar into a productive person, while remembering the numerous instances in recent years when Sri Lanka had gone to the international community with a begging bowl for funds.
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