Shehan Semasinghe Pic by Samantha Perera
By Nishel Fernando
The new government of President Gotabaya Rajapaksa is prepared to meet the record Rs.2 trillion debt service obligations including Rs.1.1 trillion worth of foreign debt service obligation for this year.
“Certain groups in the previous regime are attempting to paint a false image that this government is faced with severe difficulties in meeting debt service obligations. I want to point out that during former President Mahinda Rajapaksa’s term, we never faced any difficulties in meeting debt servicing obligations.
“Accordingly, there will be no difficulties in meeting upcoming debt service obligations under this government as well,” Development Banks and Loan Schemes State Minister, Shehan Semasinghe told reporters in Colombo yesterday.
He noted that Sri Lanka has Rs.2 trillion debt servicing obligations including Rs.1.1 trillion (around US$ 5.5 billion) worth foreign debt service obligations for the year.
He stressed that the government will meet the debt service obligations systematically.
According to International Monetary Fund (IMF) estimates, Sri Lanka has Rs.2.1 trillion in debt service obligations for this year, slightly below the estimated Rs.2.3 trillion debt service obligations in 2019.
The first major external debt repayment is scheduled in October with the maturity of US$ 1 billion international sovereign bond. The government also has debt service obligations worth Rs.174 billion in the first three quarters of this year on issued Sri Lanka Development Bonds.
Further, the government has debt service obligations to bilateral and multilateral organisations worth US$ 1.2 billion.
Sri Lanka has US$ 5.7 billion in gross external financing needs for the year, according to IMF.
The IMF estimated Sri Lanka’s gross estimated financing needs to be around Rs.3 trillion for the year with a projected fiscal deficit of Rs.896 billion.
However, the IMF has made these projections prior to the introduction of sweeping tax cuts by the new government, assuming the continuation of the revenue-based fiscal consolidation programme set in place by the previous regime.
Speaking of the recently granted tax cuts, Semasinghe said that these cuts will support the government’s objective of achieving 4 percent economic growth this year and over 6 percent growth in the following year by paving the way for broad participation of various groups in the economy.
“The tax cuts were aimed at giving an opportunity to support certain segments in the economy to contribute to economic growth,” he said.
Along with the tax cuts, he noted that the government is cutting unnecessary expenditure aggressively with a review mechanism in place.
“We have imposed strict limits to State expenditure. Unlike before, this government has set up a mechanism to review the progress of these expenditure cuts, which are now being implemented,” he added.
Further, Semasinghe said that the new government will focus on foreign direct investment (FDI) over external borrowings to meet the country’s foreign debt service obligations with investor-friendly policies.