Financial Times

Government debt and doublespeak

Politicians seem to have a peculiar inability to acknowledge reality. This reluctance to tell the truth usually becomes more pronounced when they are in power and have to be accountable to the voting public for their decisions and actions. The recent hype over the foreign aid that was pledged by donors and the country's indebtedness is a good example.

Take our garrulous Professor G.L. Peiris, Minister of Enterprise Development, Industrial Policy and Investment Promotion and Constitutional Affairs.

When he was an influential Cabinet minister in the previous government of the People's Alliance, Prof. Peiris was at pains to point out that the Colombo stock market could not be considered a useful barometer of the country's economic performance or health. This was because the bourse did not reflect the influence of large and significant parts of the economy such as the Ceylon tea industry, garments, power generation and infrastructure.

However, Peiris changed his tune when he quit the PA and became an influential Cabinet minister in the present UNP government.

The sharp rise in stock prices after the UNP government was formed is now construed as reflecting the performance of the economy, even though companies in significant sectors such as the apparel industry still remain unlisted.

His latest doublespeak concerns the implications of the $4.5 billion dollars in grants and loans pledged over a four-year period by bilateral and multilateral donors at the aid meeting in Tokyo. The opposition PA was quick to say that this huge dollop of foreign aid would only serve to further increase the island's already massive debt burden.

Describing such criticism as unfair, Peiris last week was quoted as having ruled out "unnecessary fears" of indebtedness. "It is totally incorrect to say this country is totally debt ridden," Peiris reportedly said.

His Cabinet colleague, Economic Reforms Minister Milinda Moragoda, spoke in the same vein in a recent television talk show where he reportedly said, in response to a question on the island's increasing indebtedness, that because the foreign aid is largely concessional it should be regarded as capital investment.

However, it is this same government that made a big fuss over the country's debt burden when it came to power. Leading government figures went to great lengths to tell the public how indebted the country is and how this enormous debt burden was hampering economic growth and preventing the government from giving them a better deal, as had been promised.

We were repeatedly told that every Sri Lankan was indebted to the tune of Rs. 77,500, going by the 2001 debt stock, and that servicing this debt had crippled economic growth.

Prime Minister Ranil Wickremesinghe said in January 2002 that the country was facing near bankruptcy and the government was facing a "gigantic problem" in servicing its debts. Debt servicing for 2002 for the first time exceeded total government revenue.

True, the debt burden referred to was largely the domestic debt that had accumulated and much of which became repayable within the same period.

It is also true that much of the aid pledged in Tokyo recently is concessional, repayable over long periods at low interest, and some of it even grants.

According to the Central Bank annual report total outstanding government debt stock increased by 15 percent to Rs. 1,669 billion at end-2002 compared to Rs. 1,453 billion the previous year "The sharp increase in outstanding debt stock and its associated high debt service burden raises concern about the sustainability of government debt," the Central Bank said. The fact of the matter is that whether the loans are domestic or foreign and bear high or low interest, they have to be repaid and would therefore increase the country's debt burden.