The yahapalana government has been irresponsible and reckless in borrowing money from its inception. Under my government, Sri Lanka Development Bonds (SLDBs) were issued only twice a year to borrow an average of around USD 350 million per year. This too, was at the height of the biggest infrastructure building programme since independence. However in the year 2015, without any such projects, the yahapalana government issued SLDBs on no less than nine occasions, followed by six in 2016 and four in 2017 and have up to now borrowed USD 7.7 billion from this source alone.
In the past three years, a further USD 9 billion has been borrowed through sovereign bonds, currency swaps, syndicated loans and the IMF Extended Fund Facility - a total of USD 16.7 billion in foreign currency borrowings alone. During this same period they have made Rupee borrowings of around Rs.6 trillion as well. Even though a part of this massive volume of debt, like the Indian currency swaps and the shorter duration SLDBs and rupee bills and bonds have been paid off, from their first year in power this government has been borrowing and repaying, and borrowing to repay in a vicious cycle that has been rapidly gaining momentum. The Debt to GDP ratio which my government managed to reduce from 91% in 2005 to 71% by the end of 2014, had shot up to nearly 81% by the end of 2015 according to IMF report No: 16/371 and a Peradeniya University don estimates it to be bordering on 90% by the end of 2017.
The yahapalana government’s borrowing spree was occasioned by the huge increase in expenditure in 2015 due to the special allowance given and the reduction in the prices of fuel and gas and certain commodities made to win the last parliamentary election. Even though the government claims they have been forced to borrow in order to pay back the loans taken by my government for infrastructure projects, the biggest such projects including the Norochcholai power plant, the Southern Expressway, the Hambantota harbour, the Colombo-Katunayake expressway and the Mattala airport all put together cost less than USD 3.9 billion and repaying these long term loans taken at concessionary rates of interest was never a strain on the economy.
On 26 January, President Maithripala Sirisena stated at a meeting with media heads, that my government had taken Rs. 10 trillion in local and foreign loans but only 1.1 trillion of that is accounted for as assets and that there is no record of what happened to the remaining Rs. 9 trillion. Later, on 7 February, just as campaigning for the local government elections ended, the Auditor General suddenly called a media conference and stated that nobody knows what our real national debt is because debt had been concealed over the past ten years, by being shifted to state owned enterprises and other government entities without being included in the public debt. He also stated that Sri Lanka’s total debt amounts to Rs. 10 trillion but the balance sheet indicates only Rs.1.1 trillion in assets. Everyone knew that the government would come up with some kind of a gimmick at the last minute with a view to influencing the election result. This time, the gimmick meant to mislead the voter came in the form of this talk about debts and assets.
According to Article 154 of our Constitution, the Auditor General’s Constitutionally mandated task is to audit all agencies of the central government, all provincial councils and local authorities and every enterprise in which the state owns more than 50% of the shares and he is the last person in the country who can claim that he does not know how much is owed by each of these institutions. His claim that we have borrowings of more than Rs.10 trillion and assets amounting only to Rs. 1.1 trillion was even more insidious and misleading. Sri Lanka’s state accounts are prepared on the ‘modified cash basis’ which is consistent with international standards and is accepted by multilateral bodies like the IMF. This system records receipts and payments and places no emphasis on the balance sheet or on the valuing of a state’s assets. The ‘accruals accounting system’ which places emphasis on the valuation of assets is not used in our country in the preparation of state accounts.
Appointments to high posts are now made by the yahapalana President on the recommendations of the ten yahapalanites sitting in the Constitutional Council – which explains the conduct of the Auditor General on the eve of an election. Through his irresponsible comments, the Auditor General basically condemned in public the audits of his predecessors of the past ten years. The Central Bank had to step in to reassure the financial markets by issuing a statement contradicting the Auditor General’s claims and pointing out that Sri Lanka’s debts are accurately recorded and that we have an unblemished record in servicing that debt. It is in the middle of all this insanity that the government has introduced the Active Liability Management Bill in order to give wings to their borrowing spree.
Parliamentarian Bandula Gunawardene has already petitioned the Supreme Court pointing out among other things that this Bill undermines the authority of parliament over financial matters, undermines the Central Bank’s management of public debt and vests the executive arm with unrestricted power in utilising the money borrowed. Under this proposed law, the executive will be able to raise over Rs. One trillion in debt and make regulations about how that money will be used. Even if Parliament subsequently refuses to endorse the manner in which the money has been utilized, what was done on the authority of the Minister in the intervening period, would still be legally valid. Furthermore, so long as it can be established that they acted in good faith, no civil or criminal liability whatsoever will attach to those involved with regard to the manner in which this money is used.
Given the scandals that have already taken place in the issuance of public debt under this government, the danger inherent in this proposed law is obvious. Therefore, the Active Liability Management Bill should be resolutely opposed by every citizen of Sri Lanka.
Mahinda Rajapaksa
Former President of Sri Lanka
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