Pursue restructuring our foreign debt under ‘Road Map’

Recently, Dr. Harsha De Silva MP went on record as follows: “There was a gap between reality and the picture painted by government spokesmen...If solutions are delayed, the blow on the people would be harder...We should restructure our debts, if the government does that then they will be able to find a medium-term solution to this problem.”                            

The press as far back as on 2 March 2019 carried a letter of mine captioned ‘Resolving the foreign debt trap’ which inter alia states as follows:

“My attention was drawn to an unanswered issue in the press on the captioned subject which inter alia revealed the following data to explain what a foreign debt trap is.

1) Foreign debt $ 53 b – 77% of GDP

2) Foreign reserves – $ 7 b

3) Annual debt repayment – over $ 5 b

4) Trade deficit – $ 10 b

5) Borrowing to repay debt, increases debt resulting in a foreign debt trap.

We know that our annual debt repayment reached astronomical proportions after 2015, mainly due to the expiry of the grace periods and the beginning of the repayment periods of many of the foreign loans which were either short-term or medium-term obtained under commercial terms to avoid harsh ancillary conditions imposed by traditional long-term foreign lending agencies like the IMF, World Bank and Asian Bank et al. It is also admitted that the infrastructure projects (though some were of national importance), didn’t generate the desired return on the massive loan investments to facilitate loan servicing.

In this difficult scenario, we appeal to the monetary authorities to avoid the debt trap and wilful default by making fervent and cogent requests to the big foreign lenders to restructure our loans by allowing longer repayment periods with concessionary interest rates. Even if it affects our international ratings, such redress will alleviate our critical annual foreign debt servicing burden and give us sufficient breathing space to come out of the vicious foreign debt trap by improving our exports, rationalising imports and reducing trade deficit through well-targeted policies and action programs. Perhaps, we can obtain assistance from UN lending agencies to underwrite the relevant loan restructuring packages.

We are confident that our good relationships with big Asian lenders like China (donor of BMICH) and Japan (JR’s World War II San Francisco declaration), coupled with the negotiating skills of our political leaders, ambassadors and concerned subject officers, could bring in favourable results. Let us not pre-empt decisions from our lenders but leave no stone unturned as the pithy Sinhala saying goes – ‘Andanna ownalu kiri erenna’!”

While thanking Dr. De Silva for re-focusing on this aggravating ‘debt-trap’, I am confident that the new Governor Cabraal will pursue the said ‘rescheduling’ requests under his new ‘road map’.

Bernard Fernando, Moratuwa