CB creating foreign debt mirage, says Harsha

Wednesday, 11 June 2014 00:01 -     - {{hitsCtrl.values.hits}}

  • UNP MP says Central Bank trying to paint a rosy picture about Lanka’s foreign debt
  • Central Bank calculations at odds with definitions, indicators of external debt in UNESCAP manual
  • Cites former CB D/Governor Wijewardena’s calculations based on CB Annual Report
  • Reworked calculations place Lanka as highly-indebted country according to UNESCAP ranking: Harsha
Sri Lanka’s Central Bank is painting a falsely rosy picture of the country’s foreign indebtedness, with flawed calculations that fail to tally with the bank’s own Annual Report for 2013, the main opposition United National Party charged yesterday. UNP MP and Economist Dr. Harsha de Silva told a press briefing yesterday that the Central Bank had issued a press release in May this year, claiming that Sri Lanka’s external debt vulnerability and debt servicing situation had improved by UNESCAP standards. “They are trying to create a false sense of security, by making calculations only on the basis of foreign debt owned by the Treasury,” the UNP lawmaker charged, saying the Central Bank’s calculation violated the definition of external debt owned by countries in the UNESCAP manual on debt management. “It’s a mirage to prop up the ‘Wonder of Asia’ fantasy,” the UNP legislator charged. Dr. de Silva cited calculations reworked by former Deputy Governor of the Central Bank W.A. Wijewardena in his weekly column in the Daily FT, in which the economist claimed the indicators used in the Central Bank press release were “incomplete, erroneous and confusing”. For instance, the press release says that the disbursed external debt outstanding to gross national income has amounted to 37.2% in 2012 and 35.1% in 2013. Thus, the country is ranked as moderately indebted according to the UNESCAP standard, the Central Bank press release said. “However, the calculation of this ratio by using the outstanding external debt reported in table 5.12 on page 154 of the Annual Report 2013 reveals that it has been 64% in 2012 and 61% in 2013. By those numbers, Sri Lanka is a highly indebted country,” the UNP MP said. “Why is the Government taking the people for fools?” Dr. De Silva charged. He said that being ranked as a highly indebted country raised major red flags about the Government continuing to borrow externally, since calculations based on the real figures showed Sri Lanka was bordering on being unable to service its debt. “The Central Bank wants to show that there is no problem taking more and more loans,” the UNP MP emphasised. Sri Lanka’s debt risk is much higher than what the Government is trying to portray, he explained. “It’s like a drunk who doesn’t realise he is about to reach his tolerance limit and is about to fall down,” he quipped. In his analysis, Wijewardana, an economist with decades of experience, also said that when the indicators provided in the UNESCAP manual are reworked using the numbers available in the Central Bank Annual report, “the results are different from what the press release sought to convey to the public”. “The reworked numbers do not allow the country’s external debt managers to be complacent. Most indicators indicate that the country is at the threshold of high external debt vulnerability. That is an ominous red light and that red light has to be taken seriously,” the senior economist noted. (DB)