Ceylon Today Editorial

Debt Trap

18 May 2017

According to Central Bank of Sri Lanka's (CBSL's) last year's annual report, released recently, the rupee value of the Government of Sri Lanka's (GoSL's) foreign debt stock as at end last year stood at Rs 4,045,796 million.

Of this number, what Sri Lanka owes to China amounted to Rs 374,020 million or 9.24% of GoSL's total foreign debt. The Chinese debt stock comprised borrowings direct from Beijing, coupled with borrowings from Export-Import Bank of China (China EximBank) which is also controlled by Beijing.

CBSL said loans taken from China EximBank, Rs 242,416 million, or 6% of GoSL's total debt stock was loans obtained from financial markets. Loans obtained from financial markets are not necessarily concessional, they are generally commercial.

It said of GoSL's total foreign debt stock, Rs 1,897,680 million were concessional loans, Rs 538,859 million (non- concessional) and commercial (Rs 1,609,257 million).

In the segmentalization of foreign debt, CBSL said that Rs 1,076,549 million was multilateral, Rs 945,754 million (bilateral) and Rs 2,023,493 million (financial markets).
CBSL data showed that in 1950, coinciding with the year that CBSL was founded and from which year such data is in the public domain, GoSL's foreign debt then comprised Rs 125 million or 3.2% of GDP, while total debt was 16.9% of GDP.

Since then, over a span of 66 years, foreign debt has risen by Rs 4,045,671 million (3,236,536.8%), its foreign debt to GDP ratio by 968.75% to 34.2%, while total debt as a percentage of GDP had increased by 369.23% to 79.3%.

One way out of the debt trap is the leasing of the Hambantota Port to the Chinese from which GoSL plans to raise $ 1.1 billion (Rs 167.75 billion). Conversions are based on Monday's administered 'spot' price which was Rs 152.50 to the dollar. CBSL deals in 'spot' in local markets.

In US dollar terms, the country's total external debt stock as at last year end stood at US$ 46.6 billion, up from the previous year's (2015) figure of $ 44.8 billion.

Outstanding liabilities of the GoSL's external debt amounted to 58.41% of total external debt last year, compared to 55% in 2015, an increase of 3.41 percentage points (6.2%).

The country's total external debt increased by $ 1.8 billion, last year. Consequently, external debt stock increased from $ 44.8 billion in 2015 to $ 46.6 billion last year.

External borrowings from GoSL increased last year due to the issuance of an international sovereign bond (ISB) and two foreign currency term loan facilities. Recently, GoSL raised another ISB ($ 1.5 billion), which proceeds were expected to hit the market yesterday.

Capital repayments on external debt amounted to $ 3,157 million last year, compared to $ 3,435 million in 2015. CBSL said that interest payments on outstanding external debt obligations increased from $ 1,190 million in 2015 to $ 1,209 million last year.

The increase in interest payments was mainly due to the expansion in interest payments made by the private sector and deposit taking corporations, the Bank said.

Deposit taking corporations included State Banks, which during President Mahinda Rajapaksa/then CBSL Governor Ajith Nivard Cabraal era from November 2005 to 8 January, 2015, were made to proxy- borrow on behalf of GoSL.

'The continued rise in Sri Lanka's external debt remains a concern in the external sector, particularly in view of the expected increase in the cost of borrowing due to a rise in global interest rates,' CBSL said.

CBSL was averring to the fact that whereas interest rates in the world's largest economy, the USA, since the development of the global financial crisis in 2008, remained zero for seven years, resulting in low interest rates globally, that stance has since changed.

With the recovery of the US economy, seven years later, the Federal Reserve System increased its Fed Funds Rate (FFR) by 25 basis points (bps) in December 2015 to be between 25-50 bps, whilst making similar increases twice after that, for the FFR to be currently between 75-100 bps; with another increase expected next month.

When interest rates in the USA rise, those have a knock on effect on global interest rates, making those rates too to increase.

The Bank said that whereas GoSL's total debt stock was equivalent to 79.3% of GDP, that which was foreign comprised 34.2%, an increase of 1.8 percentage points (5.56%) over the previous year 2015 figure of 32.4% of GDP.

CBSL said that GoSL's total outstanding foreign debtincreased by 14.2% year on year to Rs 4,045.8 billion last year due to a combination of borrowings to finance the budget deficit and rupee depreciation.

It however said that in dollar terms, foreign currency denominated debt ended last year at $ 4,019.8 million, down from last year's figure of $ 4,790.1 million.

However, CBSL said that debt servicing payments in Sri Lanka grew at a higher rate than the growth in revenue in the past few decades. Last year, interest payments of the existing debt stock absorbed about 36.2% of total GoSL revenue. Also, 80.2% of total GoSL revenue was absorbed by total debt servicing payments, leaving only a small portion of revenue to be utilized for all other public expenditure programmes last year, it said.

GoSL's debt stock alone, during this period increased from $ 24,681 million to $ 27,197 million. CBSL's debt however declined from $ 2,823 million to $ 2,022 million. Meanwhile, private corporations and state owned business enterprises' debt in the review period increased from $ 5,567 million to $ 5,774 million. Deposit taking corporations however, saw their foreign debt stock, last year over 2015, decline to $ 8,790 million from $ 9,156 million.

Daily News Editorial

A boost for trade and development

18 May 2017

Sri Lanka has finally regained the much-awaited Generalised Scheme of Preferences (GSP) Plus facility from the European Union (EU). The GSP Plus allows developing countries to pay less or no duties on their exports to the EU. This gives them vital access to EU markets and contributes to their economic growth. Sri Lanka will now be getting preferential access to the EU market from Friday after a lapse of nearly seven years.

Sri Lanka lost the Plus facility in 2010, after an HR investigation by the European Commission. The investigation relied on reports by UN Special Rapporteurs and Representatives, other UN bodies and by human rights NGOs that identified significant shortcomings in Sri Lanka’s implementation of three UN human rights conventions: the International Covenant on Civil and Political Rights, the Convention against Torture and the Convention on the Rights of the Child.

The restoration of GSP Plus is a diplomatic and moral victory for the Government which has totally transformed the country’s foreign policy after coming to power in 2015. Forging better relations with the EU and other Western nations was one of the priorities of the National Unity Government. These countries share the same democratic values and ethos of governance and it is in our interest to cultivate better ties with them. They also happen to be our biggest trade and Overseas Development Assistance (ODA) partners.

It was clear at least from the beginning of this year that the EU would grant the facility to Sri Lanka, but the final confirmation came yesterday. (The EU had earlier resumed fish imports from Sri Lanka). The granting of GSP+ is based on the country showing that it is continuing to make progress towards effectively implementing 27 international conventions on human rights, labour conditions, protection of the environment and good governance.

The removal of the GSP Plus facility led to the closure of at least 40 apparel factories and a loss of millions of dollars. There was much chest-beating at the time about not giving up the country’s sovereignty by implementing the EU’s human rights requests, but the reality is that every country that seeks GSP Plus has to conform to certain universal human rights and values. These do not violate our sovereignty – on the other hand, they strengthen it. Indeed, no other country that enjoys the GSP Plus has surrendered its sovereignty as far as we know. There will be a stringent, bi-annual monitoring process to make sure that Sri Lanka continues to progress. The first such report is due in January 2018.

This is certainly a significant moment for Sri Lanka’s export fraternity, for the EU is the country’s biggest export market for apparel and many other goods, responsible for 32 percent of all exports. The EU imported goods worth 2.6 billion euro from Sri Lanka in 2016 alone even without the GSP Plus facility. The apparel and textiles sector accounts for nearly 62 percent of all exports to the EU (2016 figures of European Commission). According to Minister Harin Fernando, this could go up to 4 billion euro with the restoration of GSP Plus which will see the full removal of duties on 66% of tariff lines, covering a wide array of products including textiles and fisheries. The EU itself sees an additional one billion euro worth of business in the next few years. The exporters of garments and textiles, rubber products, small machinery, fisheries, food products and tea stand to gain the most from the improved trade status.

The benefits of GSP Plus extend beyond enhanced exports and revenue. The GSP Plus will help reduce Sri Lanka’s trade deficit and encourage Sri Lankan companies to diversity their exports due to their increased competitiveness in the EU market. An indirect benefit of GSP Plus is making Sri Lanka a more attractive country for foreign investors which could in turn generate more jobs for local youth.

Both the EU and Sri Lankan authorities hope that this would benefit small and medium-sized enterprises (SMEs) too. The EU is launching a project worth 8 million euro over five years to help to bring SME products up to EU standards which are very stringent.

Sri Lanka is rapidly developing, which that means that we risk losing certain aid and trade concession programmes. With regard to GSP Plus, Sri Lanka has the chance to benefit from the trade scheme until it achieves upper middle income country status for three consecutive years. Based on current economic trends, that should mean that Sri Lanka will benefit from GSP+ until at least 2021. Five years may seem really short, but Sri Lankan exporters should seize this moment to export products so good that they will be more competitive and in demand even if the duty concessions are removed five years from now. We are not the only pebble on the beach and our competitors, some of whom continued to enjoy GSP Plus while we were cut off, are catching up. Thus export diversification, new markets and quality improvements are essential to stay ahead.

The Island Editorial

Antho jata bahi jata

18 May 2017

It looks as if the UNP thought the SLFP had overstayed its welcome in the yahapalana government though the originally agreed two-year cohabitation period is not yet over. The SLFP has had to endure contempt, humiliation and obloquy at the hands of the UNP and its backers.

A collective of pro-UNP NGOs has recently reproached the SLFP members of the Cabinet for the government’s failure to make good on its pre-election pledges. It has also held them responsible for the inordinate delay in introducing the promised constitutional reforms. There seems to be an attempt to lay all the sins of the yahapalana regime on the SLFP goat, as it were, and banish it into the political wilderness.


Minister Lakshman Kiriella, too, has attributed the vexing cunctation in the constitution-making process to the SLFP’s failure to submit its constitutional proposals. The UNP and the SLFP are at loggerheads over a Cabinet reshuffle on the cards. Some UNP big guns have reportedly threatened to leave the government if their ministerial posts are changed. They suspect a surreptitious move on the part of the SLFP to consolidate its power in the government by granting all important ministerial posts to its Cabinet members. The UNP’s rank and file are openly questioning the party leadership’s wisdom of continuing with the yahapalana cohabitation. Some members of the UNP’s ginger group have made known their desire to join the Cabinet ‘to serve the public better’.


The SLFP is divided and it is now up to the UNP to take the tide in its affairs at the flood by going for an election or regret later. However, unless the UNP supporters are assured that they will have a government of their own in 2020 many of them may not be so enthusiastic as to cast their votes let alone go all out to campaign for their party’s victory.


The popularity of the yahapalana government, which has so far failed to live up to public expectations is manifestly on the wane. If the SLFP and the UNP are seen to be keen to resume their cohabitation after contesting future elections separately, frustrated voters are likely to look for an alternative. The Joint Opposition (JO) is likely to stand to gain in such an eventuality. (The JVP was hoping to capitalise on public disillusionment resulting from the failure of the two main parties on honeymoon, but its plan went awry due to the emergence of a formidable SLFP dissident group.)


President Sirisena is in a dilemma. He brought down a strong SLFP-led government in 2015 after defecting to the Opposition and winning the last presidential election. Thereafter, he engineered the SLFP-led UPFA’s defeat to prevent Mahinda Rajapaksa from becoming the Prime Minister. He has thus achieved his personal goals at the expense of the SLFP, which he currently leads. Now, he is faced with the daunting task of making the debilitated SLFP win elections!


The President is like a jockey who is trying to win a race with a horse he has willfully crippled. Besides the problems he faces in the national unity government, which is paradoxically characterised by disunity, he has had to contend with some other serious issues including the prospect of his loyalists losing power in two Provincial Councils. He may have been able to bring the situation under control in the North Central Province, wherein lies his home district, Polonnaruwa, by giving ministerial posts to some rebel councillors, but his problems are far from over. If the JO succeeds in wresting control of a Provincial Council that will mark the tipping point in the power struggle between the two factions of the SLFP.


Antho jata bahi jata—conflicts within, conflicts without!