KDU Medical Faculty: Does Government have a plan?

What the Government must do, on the basis of its own SOE review committee report, is to come up with a creative plan to make the teaching hospital viable

The Deputy Minister of Defence announced in Parliament that admission to the Faculty of Medicine at the Kotelawala Defence University would henceforth be limited to cadet officers and international students. The announcement on 22 May appears to have been a response to objections by the Inter University Students’ Federation (IUSF) to the KDU’s call for applications for the third intake of students. 

On the face, this appears to be a simple matter. The Government is seeking to secure its left flank from the shock troops of the Peratugami Party and preempt them from getting the water treatment on the streets of Colombo. But the decision is evidence of the lack of understanding of economic realities by at least a part of Government.

The 33 billion plus problem

According to the latest debt bulletin issued by the Ministry of Finance (2024 4th Quarter), the outstandings of the treasury-guaranteed loans taken by KDU were Rs. 69.91 million to the Bank of Ceylon and Rs. 33,896.09 million to the National Savings Bank. KDU appears to have been paying down the BoC loan taken some time back. The problem is the 33 billion plus loan taken from the state-owned NSB to build a state-of-the-art teaching hospital for the Faculty of Medicine, a problem the present Government is aware of. The committee headed by the Secretary to the Prime Minister to review 160 State institutions made specific mention of the KDU hospital in its report. 

The capital repayment period of the loan is from September 2023 to September 2031 (96 months) according to the latest KDU annual report, available on the Parliament website (but no longer on the KDU website). According to the Annual Report, the total loans outstanding, as at the end of 2022, amounted to Rs. 35,669,559,514 (suggesting that some repayments have been made since). 

Assuming interest payments for the two hospital loans will continue to be paid by Treasury and using the data in the annual report as the base, KDU would have to pay approximately Rs. 369.4 million per month as repayment of the hospital loan. However, according to the Annual Report only Rs. 650 million per year is planned to be earned from hospital operations for loan repayments (p. 127). That amounts to Rs. 54.2 million a month, leaving a monthly shortfall of approximately Rs. 315.2 million per month, indicating that KDU possibly never had a realistic plan to repay the hospital loan. This loan will have to be repaid by Treasury, or in other words, by the taxpayers of this country. 

What do admission policies have to do with it?

The hostility towards private medical education has led the Sri Lanka Medical Council, the regulatory body responsible for accrediting medical faculties, to impose onerous conditions on applicant institutions. KDU obtained the necessary approvals by building a teaching hospital from scratch, using a Treasury-guaranteed loan from a State-owned bank. 

The building exists. But it must have enough patients, and it must have enough students being educated at it. It must generate enough revenue. Inadequate thought appears to have been given to these problems when the loan was taken. The hospital must be operated on the basis of fees for services to generate revenue to meet at least part of the repayments. It may also charge the university for the students being trained there. That revenue stream depends on optimising the number of fee-paying students. This appears to have been the rationale for the Cabinet decision made in early 2024 to admit fee-paying students based on Advanced Level Examination Z scores.

It is not that this revenue stream will suffice to make loan repayments in excess of Rs. 50 million each month. But rolling it back to appease the IUSF means that the resultant loss will be greater.

The Government is between a rock and a hard place. Defaulting on the loan is not an option because its size is such that the National Savings Bank, the safest of the State banks, could be harmed. It cannot absorb the loss because of the fiscal constraints and the IMF program. Rs. 33 billion is more than the Rs. 20 billion the Government spent through the 2025 Budget to partially settle SriLankan Airlines’ Treasury-guaranteed debt. The reactions to that handout should have caused pause for thought.

What the Government must do, on the basis of its own SOE review committee report, is to come up with a creative plan to make the teaching hospital viable. Instead, it has exacerbated the problem by shutting down a revenue stream for the KDU Faculty of Medicine.

In addition, the Government may wish to initiate a corruption investigation and hold the responsible persons to account. These expenditures were not approved by Parliament. Treasury repayment of all or part of the loan may amount to a wrongful or unlawful loss caused to the Government (section 111 of the Anti-Corruption Act).