Special Assignments Minister
Dr. Sarath Amunugama discusses the current economic and political situation of the country and the debt trap
Sri Lanka is in right now. He shared the following with the .Dailymirror
The unity government announced that Sri Lanka was in a debt trap of Rs. 9 trillion by the time it took over the administration from the MR regime. What is the current position?
According to the Central Bank figures, the total outstanding government debt as at end of August 2016 was Rs. 9,316.569 billion (or 9.316 trillion). Mind you that this figure does not include the contingent liability of government in respect of loans, both domestic and external, that various State entities had raised on the strength of Treasury guarantees, prior to this government coming into power. Some months ago the Minister of Finance gave a figure for those contingent liabilities.
You have to put these figures – the debt figure at the time this government took over and the most recently available figure – in context. Public debt, especially that component denominated in foreign currency, cannot be settled as you settle your grocery bill at the end of the month. You have to plan over the mid and the long term to draw it down. In the interim in fact you may have to incur further debt just to service the existing debt, because most of these loans have been taken for massive infrastructure projects which do not earn a net revenue in the short term and even in the long term their benefits - at least in the case of the few viable projects like the road projects - will be spread out over the entire economy but will not yield a direct return to government to pay off debts. So, the scaling down of the debt will be a long drawn out process.
Prime Minister Ranil Wickremesinghe on records saying that economy is in a better position now as a result of proper debt servicing. How do you see this?
The economy is in a better position today although strenuous work lies ahead. First and foremost, we did not default in our debt obligations, hard pressed as we were. The IMF appreciated our management of the economy and supported us in servicing part of the debt through an Extended Fund Facility. We have now gained credibility and a breathing space in which to consolidate ourselves. Basically this means that our revenue - from all sources but particularly external trade must increase.
The Central Bank data indicates that local external debt has increased to Rs. 4,0697 billion by September 2016 from Rs. 39,216 billion in July 2016; which means, the unity government has also obtained foreign loans heavily....
There has been an increase in the external debt, although the figures you gave needs to be corrected. For instance, the figure for July 2016 is Rs. 3,921.5 billion and not 39,216 billion. The figure for September also needs the same numerical order of correction. The actual increase between the two dates is Rs.148 billion and not of the order of 1000 odd billion. You must also be aware that the CB commenting on this increase has pointed out: “However, the growth in outstanding external debt remained in line with the growth of GDP, resulting in the total outstanding debt as a percentage of GDP remaining at similar levels as at end June 2016 compared to the end 2015 position.” (page 12 - Recent Economic Developments – 2016 -2017) I said earlier that even to repay some of the debt, you need to incur more debt because the projects for which money was borrowed do not provide a direct return out of which to repay the debt. Also, the fact that a previous government had borrowed on high rates of interest and other debatable terms should not prevent a government in power engaging in prudent borrowing for vital development expenditure. The mere volume of the debt does not give the whole story. You have to look at the characteristics of the debt and the actual economic problems that have to be addressed
Though the amount of external debts topped Rs. 4,0697 billion in September 2016; we don’t see any major development projects being launched. What are your views on this?
At the outset, you need to correct the figure you gave as I pointed out earlier. As I pointed out earlier much of the addition to the debt would has gone to repay the old debt. There are several major development projects that are due to commence or are on- going. Take for example the Central and Ruwanpura Expressways etc, the resurrection and near-completion of the massive Moragahakanda project and the Wayamba Canal which was just inaugurated by the President. Several Megapolis projects are about to take off. The Southern Industrial Zone with its 500 factories is due to take off shortly. You need to understand that in many of the modern development projects, the planning and preparatory stage takes a substantial period of time before you could see anything on the ground. More to the point of your question, although most people do not understand this; this preparatory stage which people do not see, also involves a considerable expenditure of money on expert consultancies, procurement of equipment etc. It is not realistic to see some expenditure of money and expect to see something appearing on the ground immediately.
The unity government has failed to draw FDI to a satisfactory level in the last two years. In 2015, the FDI in Sri Lanka was a meagre US$ 1.65 billion while in first quarter of 2016, it dropped by 52% to stand at US$ 164.5 million. In quite a contrast to our poor performance, Myanmar is seeking to attract $8 billion in FDI in the present fiscal year of 2016-2017 and the country drew $9.5 billion worth of FDI last year. Bangladesh drew US$ 2.23 billion in 2016 – 2017. Where did we err?
You are right. Our performance regarding FDI is most unsatisfactory. Part of our problem is that our systems that are relevant to attracting and facilitating FDI as well as those relevant to our general day to day economic operations are still archaic. We score quite low on the ‘Ease of doing business’ index. The government made an attempt to rectify the situation through the creation of a new streamlined mechanism.
At present it stands stalled but we shall be pursuing it, if necessary, with amendments. Apart from that, medieval thinking which often dominates our public discourse sends wrong signals to prospective investors. It is not that our competitors some of whom you mentioned have more sophisticated populations but our ‘medieval thinkers’ are more vocal than theirs and attract a lot of underserved attention. Also for over 70 years since independence, this country has been fixated on State intervention. This is an outdated ideology and is the root cause of our poor economic performance. Unfortunately our political parties have outdated economic policies that cannot deliver the goods.
The unity government leaders say that they had made new friends in the last two years in the global arena and changed the negative attitude on Sri Lanka in the west, in particular. But I don’t see any constructive assistance from the EU or US but as always it was China, India and Japan that come to Sri Lanka’s assistance in terms of investment and aid. Do you agree?
First, the matter of Sri Lanka’s negative image being changed is not only an opinion of the leaders of the government, it is a fact observable by any unprejudiced person. The evidence is too numerous to relate. As to the alleged non-assistance of the West, don’t forget their flexible attitude in respect of the fish imports ban and GSP plus.
The other fact that every student of global economics knows is that the West has not yet fully recovered from the effects of the global financial crisis around 2008. Protectionism is also very much alive in the West. President Trump did not mince his words.
In any case the present era has been called the Asian Century. Remember President Obama’s famous ‘Pivot to Asia’. It is well recognized globally that Asia drives the world now. So what is so strange about receiving assistance from India, China and Japan rather than from the West? That is a fact of life.
You have served as the Minister of Higher Education once. What do you think about the massive protests by the GMOA against the SAITM?
This is the same outdated ideology that the State must do everything. Communist countries that propagated this ideology have all collapsed. Under this statist ideology, corruption, inefficiency and bureaucracy is inevitable.
The GMOA is hiding behind their slogan to hide their inefficiency and corruption. Finally, the poor consumer (in this case the patient) has to suffer for this wrong and outdated thinking. We need more; not less, universities of all kinds to help the youth of this country.
In the case of SAITM, the problem has boiled down to the question of clinical training of the SAITM students. As the Deans have suggested, the Government hospitals must be opened for these students to obtain clinical training. Also these students should pass the Act 16 requirement prior to enrolment. That I think is a fair solution.
Is the unity government capable of providing a better education to all our students at a time the general education and higher education face a huge transformation and struggle to keep pace with the fast changing world without private education?
I don’t think so. It is ‘not for nothing’ that Marx called for the withering away of the State. Lenin and Stalin replaced that with a State bureaucracy as Trotsky pointed out. That type of State has failed.
To your assessment, what are the areas that the government must draw its immediate attention for a change in national education?
There must be more private sector involvement. The State has no resources to meet the urgent needs of expansion of all sectors.
The SLFP is in total chaos and split into three factions within the SLFP led by President Maithripala Sirisena, the SLFP group that is with the JO led by former President Mahinda Rajapaksa and the SLFP splinter group in the SLPP. The UNP does not have any significant challenge from within and stands a better chance to emerge as the winner in any future elections. Do you agree?
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