Where is the debt trap leading to?

On Friday (16.12.2016) Finance Minister Ravi Karunanayake announced that the World Bank had decided to extend a soft loan of US$ 1,340 million to Sri Lanka at a low interest rate. 

Giving some details of the loan, the Minister said the World Bank had informed the Sri Lankan Government an International Bank of Reconstruction and Development (IBRD) loan of US$ 900 million and another US$ 440 million under International Development Assistance (IDA) would be granted to Sri Lanka for a 3-year period. 

The Minister sounded both triumphant and relieved. And rightly so, for the country is in fact, facing a severe financial crisis.

Speaking in Parliament earlier this year none less than the Prime Minister himself admitted that he did not have exact figures of the country’s total debt. In fact the country currently owes its creditors a massive sum of around US $64.9 billion!  The country’s debt-to-GDP ratio currently stands at around 75% and around 85% of all government revenue is currently going towards debt repayment! 

Whilst we can be happy that the World Bank had offered this loan to the country, it also means that in addition to the US $64.9 billion debt we have to repay, when the new loan is made available -probably early next year- the country will owe its creditors an astounding US $64.9 billion in addition to another US$ 1,340 million!!!

Can we repay this mind-boggling sum and how, is the question facing all Sri Lankans. The World Bank believes Sri Lanka has the capacity to get out of this crisis based on recommendations of the International Monetary Fund (IMF). 

There is also the fact, that the country has for over the past forty to fifty years, never defaulted in making repayment –not even during the dark era, when it was fighting what was described  as the world’s most ruthless terrorist organisation.

But what brought this small nation with a population of a mere 20 million persons to this precarious position?  The three-decade-long fight against terrorism was undoubtedly one cause. But that war ended nearly half a decade ago...Commercial loans taken on high interest for what have turned out to be bad investments, has been a leading cause for the country’s indebted state.  As for example the building of a new city in isolated Hambantota together with the mega port, and the cost of the removal of a rock from the seabed to make the port operable, cost a multi-million dollars, the international airport at Mattala, which has been described as the world’s emptiest, and what is known to the highest costing highway world-wide are some of the reasons behind this country’s debt ridden state. 

Added to this, the present regime too has made its own contribution toward the escalating debt burden. World Bank figures show the present government, despite receiving over US $ 224 million, has not been able to commence any new infrastructure development project.

The waste continues and the debt keeps growing. Attracting Foreign Direct Investment (FDI) presents probably the only sensible way in which the country can get itself out of the debt trap we are faced with. This, however, will come only if we can build investor confidence in our country. The seizing of a ship by striking workers at the port at Hambantota hardly makes the country attractive to investors.  It is ironic that workers who were protesting what they feared were potential job losses because of a change of management -from government ownership to one of private management- attempted to seize a ship (akin to an act of piracy) almost killing  off the chance of turning it into a viable entity. This country faces a Herculean task of trying to get out of a debt trap. The income brought in from tea, rubber and coconut, our top income earners of yesteryear are now on the decline. The country needs to diversify its economic base.

Let’s stop playing politics for the sake of the ‘motherland’ we all claim to be fighting for. Let’s join hands to take our people and country away from the abyss which stares us in the face.