Business Main

Major foreign debt restructuring move after elections

03 Aug 2015 - {{hitsCtrl.values.hits}}

By Chandeepa Wettasinghe

Interest rates on foreign borrowings will be brought down significantly via debt restructuring following the upcoming election, Finance Minister Ravi Karunanayake said.

“We cannot reduce the debt. All we can do is reduce debt servicing; increase the tenor and reduce the interest rate. We have managed to increase the tenor by speaking to Chinese companies and the Chinese government and we have successfully pushed it back.”

Karunanayake said this at a recent forum titled “United National Party Road Map for Sri Lanka’s Economy” organized by the UNP Young Professionals’ Association.

He added that the current interest rate average of 5.6 percent will be cut down to approximately 2.4 percent by paying the Chinese loans through new low interest development funding.

“We have managed to engage ourselves in discussing—instead of having 6-8 percent interest rates—the ability to have JAICA or Japan coming onboard with 0.5 percent. KOICA from Korea, Qatar Government, the European Union, and World Bank, all of them,” Karunanayake added.

Sri Lanka will be unable to avail itself of development funding in the near future once it surpasses the US$4,125 Gross National Income per capita limit.

The Department of Census and Statistics says Sri Lanka’s current GNI level is around US$ 3,795.

However, Karunanayake said that the level of trust created by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe has gone a long way to gain the approval of the bilateral and multilateral agencies, and that finalizing the agreements are pending the election outcome.

According to calculations made on July 29, every citizen of Sri Lanka has a debt of Rs.440,000 as the government has accumulated a total debt of Rs.8.4 trillion—as well as Rs.525 billion in contingent liabilities—compared to Rs.1.8 trillion in debt in January 2005. Approximately 47 percent of the total debt is foreign, he added.

The country is in a debt crisis not only due to the previous government financing its infrastructure-led economic development through Chinese commercial loans, but also due to settling on fixed interest rates instead of the initial floating rates.

“When the Hambantota Port (loan) was signed, it was LIBOR plus 90 basis points, and LIBOR was slightly above 5 percent in 2007. With the crisis (in 2008) LIBOR started to crash. When it hit about 2.5 percent, President Mahinda Rajapaksa put out a Cabinet paper and sought to fix the rate for the remaining period of 15 years at 6.3 percent,” Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva alleged.

Chinese state media agency Xinhua earlier this year confirmed that the previous regime had insisted on higher rates, but quoted a different timeline, saying the former President had signed on the fixed rate in 2007 prior to the interest rate crash.

Dr. de Silva alleged that Rajapaksa had gone ahead with the move in spite of then Treasury Secretary Dr. P. B. Jayasundera advising against it, for which he had been placed on compulsory leave or removed from office for a short period.

“Now LIBOR is at 0.5 percent or less and 90 basis points added on to that is 1.3 to 1.4 percent, as opposed to 6.3 percent we’re paying at. This is how, when we could’ve paid low interest rates, we sought to pay 4 to 5 times more. I don’t know why we did it. Questions have been raised. Investigations have begun.

t’s not the Chinese who sought an increase as far as we know,” he said.

Business Main

Major foreign debt restructuring move after elections

Most Popular Articles

CBSL shifts into macro-stability defence mode with sharp rate hike

Middle east tensions weigh on CSE as selling pressure intensifies

Global tariffs and geopolitical shockwaves trigger broad market selloff on CSE

CBSL launches anti-scam drive as fraud risks grow

Earnings optimism lifts CSE as ASPI gains over 111 points

CSE extends losses as geopolitical risks and tariff concerns weigh on sentiment

Latest News

Massive raid nets 19 firearms, Ice and 100,000 pregabalin pills

Wrong decisions led to rupee devaluation crisis - Mujibur

Gimhani ruled out of Women’s T20 World Cup; Vimukthi called up

Suspected Ebola case reported in India

FCID arrests Wimal’s ex-media secretary