Corruption, mismanagement and our debt crisis - EDITORIAL

For the past 20 years or more different governments which ruled our country have borrowed large sums of money, amounting to millions of US$. Much of these funds have either been spirited away via corruption rackets running into millions of dollars or or have been expended on projects which have not had a capacity to bring in income sufficient to repay the said loans.   

Two classic examples stand out -the bond scam (an example of mega corruption) and the construction of the Mattala airport (an initiative to build an alternate airport to the Bandaranaike International Airport) which has remained a white elephant.   

The airport was constructed via a government concessional loan agreement estimated to cost US$209 million. However after cost overruns the project ultimately cost $243.7 million. Declared open in March 2013, in 2014 the then Aviation Minister - Piyankara Jayaratne - reported to parliament that the airport had only earned US$123 (around Rs. 16,000/-) in revenue in a single month! The net result - deficit budgets ranging between US$ 1.8 to over US$ 2 billion, sorted out through billion dollar loans.   

Today according to the Department of External Resources, our total outstanding external debt stands at a whopping US$ 35.1billion.Finance Minister Basil Rajapaksa has admitted that the country needs to pay US$6.9 billion in total foreign debt repayment this year, including a US$1 billion sovereign bond maturing in July and interest payments to other foreign lenders.  
The pandemic has sapped the flow of dollars from the country’s formerly buoyant tourism sector, which in 2018, its best year on record, generated more than US$4 billion.  

A drop in migrant worker remittances, and the country’s multi-billion-dollar trade and current account deficits, have made it even harder for the present government to meet its annual debt payments.   
Foreign reserves had plummeted from US$7.9 billion at the end of 2019 to US$1.6 billion usable reserves by November 2021. The central bank’s provisional calculations reveal that foreign remittances sank by a staggering 22.7% going from US$7.19 billion in 2020 to US$5.49 billion in 2021.  

In short we have no cash to pay the foreign debt due this year.  
Despite denials from authoritative sources within government, the country is living a hand-to-mouth existence. Government has been forced to ban imports. We do not have cash for import of essentials like fuel, food, medicines and agricultural inputs.  

The Governor of the Central Bank, (normally an independent economist is neither economist nor politically independent, being a Minister in the present government) denies the country is on the verge of defaulting on foreign loan repayments. But recently the central bank was forced to sell half the country’s US$382 million worth of gold reserves.  Engineers at the electricity board have warned that the country is facing a power shortage and the immediate past general manager of the board has warned of near blackout conditions by March this year, due to government’s inability to purchase adequate fuel requirements.  

Agricultural production is almost at a standstill due to a shortage of agro-inputs, meaning that by April-May this year we may face a shortage of basic foods like rice and veges. Already cooking gas and milk foods are in short supply. As if to prove how dire the situation is, the Minister of Transport is advocating a return to bicycles as a means of transport. It would be interesting to see the president, his cabinet colleagues, MPs and their squads of security guards cycling to and from their offices.  

It therefore appears our country is on the road to bankruptcy. The nations debt which president Rajapaksa inherited from past governments is spiraling and has worsened following the outbreak of Covid-19. Business leaders, respected analysts and Opposition parliamentarians urged the government to explore a restructuring of the debt via an International Monetary Fund relief package.  The Governor of the Central Bank however, is opposed to approaching the International Monetary Fund (IMF) claiming IMF conditions will infringe the country’s sovereignty.  

On Thursday however, Finance Minister Basil Rajapaksa announced government was in fact negotiating/contemplating a programme with the IMF for a relief package to help restructure loan repayment and in this way avoid defaulting loan repayment.  

IMF of course imposes rigid conditions for the extension of such a facility, among which will be cuts in subsidies and getting rid of extraneous workers in the state institutions.  
But desperate situations require desperate measures and in the end we will be forced to accept these conditions - with the general public paying for government’s profligacy