Govt. debt obligations top Rs.2tn this year

• Govt. has so far raised Rs.311bn via T. bills, bonds, SLDBS and FCBU loans
• Govt. plans to borrow Rs.1,257bn on net basis for the year including Rs.523bn in foreign borrowings 
• US$ 2.8bn required to service loan obligations in first half
• Total debt increased by Rs.1bn to Rs.13, 031bn at end 2019 
• Blames ISB issuances after 2015 for extremely high foreign debt situation 
• Treasury expects total revenue of around Rs.1,775bn through tax cuts 
• Admits COVID- 19 pandemic remains key risk that could potentially slow down economic growth

By Nishel Fernando
The government has so far raised Rs.311 billion to fulfil over Rs.2 trillion debt servicing obligations for this year, which includes US$ 4.5 billion in foreign debt servicing obligations. 
“The foreign debt servicing in 2020 alone amounts to US$ 4.5 billion and of which US$ 2.8 billion is required for the first half of 2020. 

The government raised almost Rs.311 billion (over US$1.6 billion) through treasury bills, bonds, SLDB’s and Foreign Currency Banking Unit (FCBU) loans during this period in 2020,” the Finance Ministry’s Economic and Policy Development said in the Pre-election Budgetary Position Report 2020 released recently. 

Sri Lanka a couple of weeks ago received US$ 500 million from China Development Bank (CDB) under the upsized Foreign Currency Term Financing Facility 2018 as the first tranche and another US$ 500 million is pending. 

The Treasury insisted that a US$1 billion loan was granted under more favourable terms compared to 2018.

“The Foreign Currency Term Financing Facility 2018 with China Development Bank (CDB) has been upsized at more favourable terms to US$ 1,000 million including the extension of the tenure to 10 years in 2020 from 8 years in 2018 with a 3-year grace period, and a decrease in the margins over 6 month US$ LIBOR,” the report said.

In 2019, the total government debt had increased at a faster pace, exceeding the nominal GDP growth. 

The total debt was increased by Rs.1 trillion to Rs.13, 031 billion at end 2019 compared to 2018.

While expressing concerns on foreign currency debt, the Treasury blamed the issuance of international sovereign bonds since 2015 for the current foreign debt stock. 

“However, the cause for concern is that foreign currency debt which was only 41.6 percent of the total debt stock in 2014 has now increased to almost 50 percent, as floating of international sovereign bonds since 2015 has been frequent. 

“Of the total foreign currency debt stock of US$ 35 billion, International Sovereign Bonds (ISB) account for almost 50 percent or US$ 15 billion of which US$ 12 billion was raised during the period 2015-2019,” the Treasury said.

The total foreign debt exposure to the total debt in 2019 remained at 49.1 percent, marginally below 49.5 percent in 2018.

The government plans to borrow Rs. 1,257 billion on net basis for the year including Rs. 523 billion in foreign borrowings.

The treasury expects total revenue of around Rs.1, 775 billion with tax revenue of Rs. 1,565 billion and non-tax revenue of Rs.200 billion for 2020 despite the tax cuts. 
However, it noted that these revenue estimates are based on the assumptions that the economy would grow by 4 percent during the year. 

In February, total State revenue increased to Rs.170.9 billion from Rs.146 billion in the corresponding period despite a slight decrease in tax income, according to the Treasury.
The government plans to cut public investment worth Rs.300-400 billion for the year (excluding the recording of the capital expenditure that has been in arrears from 2019) from Rs.631 billion recorded in 2019.

In February, State expenditure also decreased to Rs.176.8 billion from Rs.200.4 billion in the corresponding period due to a drastic drop in capital expenditure.

The Treasury noted that expenditure controls coupled with savings from tax reductions in government service delivery could lead to a saving of almost 0.6-0.7 percent of GDP in government expenditure.

With the inclusion of unpaid bills amounting to over 2 percent of GDP, which was carried forward from 2019, the budget deficit is projected to rise to 7.5 percent of GDP in the year.
The government expects that global economy recovery which is expected from second half of the year would resume activities in service and export sectors.

“When the global economy begins recovering from the impact of COVID-19 pandemic in the second half of 2020, it will give an impetus to port, aviation and insurance activities which will have a positive impact on the services sector,” the report said.

However, the Treasury acknowledged that COVID- 19 pandemic remains a risk that could potentially slow down economic growth and adversely impact interest rates, exchange rate, fiscal deficit and the level of government borrowings.