Sri Lanka’s economic situation has become highly uncertain with mounting local and foreign borrowings in the 18 months adding to the accumulated external debt of US$ 51 billion, Finance Ministry sources divulged.

The Ministry is taking urgent fiscal policy measures to tackle domestic debt and debt service while focusing on preliminary arrangements of external debt restructuring, reducing the fiscal deficit and external stability.

Sri Lanka’s domestic borrowings stood at Rs. 2.62 trillion during the past 18 months according to econometric models and provisional estimates of the Finance Ministry.

The domestic debt service payment this year is around Rs.80.72 billion and it is expected to increase to a high level if the government fails to control its domestic borrowings.

The total state borrowings were Rs 1.94 trillion by the end of 2021 and the loans taken from banks and licenced non banking financial institutions were Rs 3075.08 billion for the same year.

The government has borrowed a sum of Rs. 1785.10 billion for lic consumption expenditure from the banking system while the borrowings for education Arts, Entertainment and Agriculture sectors were Rs. 54.60 billion ,Rs. 11.80 billion and Rs. 81.35billion.

In addition  the total borrowings from  non bank financial institutions stood at 1142.50 billion in 2021.

The country’s external borrowings of $6.39 billion in the past 18 months has spiralled out of control as the country ran out of foreign reserves now amounting to less than $2 billion and usable reserves even less, Ministry data shows.

The Central Bank’s debt includes swaps with India, Bangladesh, Asian Clearing Union (ACU) deferred liabilities and the International Monetary Fund debt taken from the last programme.

India has committed more than $3 billion to debt-ridden Sri Lanka in loans, credit lines and credit swaps since January this year.

The majority of the foreign borrowings were made on loan agreements signed with China, which is almost 33.5 per cent, followed by ADB (25.5 per cent) and World Bank (18 per cent), respectively last year, Finance Ministry sources revealed.

The Government has obtained $809.1 million from China Development Bank (CDB) in 2021.

Meanwhile the World Bank has ruled out bridge financing or new loan commitments to crisis-hit Sri Lanka until the island nation’s economy sets up an adequate macroeconomic policy framework this year, the global lender has said.

In the wake of ever increasing domestic borrowings, ministries, departments and state institutions have been directed to control spending for development projects by cutting down overheads throughout 2022, Ministry guidelines revealed.

Treasury Bonds, Treasury Bills, Sri Lanka Development Bonds (SLDBs) and Provisional Advance were the main sources of domestic borrowings of the Government, the sources disclosed.

Accordingly, around 55 per cent of the total domestic borrowings were raised by way of Treasury Bonds while 29 per cent were raised by way of Treasury Bills and another 16 per cent was raised by way of SLDBs and Provisional Advance of Central Bank of Sri Lanka in 2021.

Further, proceeds from the Syndicate Loan issued in the first quarter of 2021 was utilised to finance the foreign currency debt service payments.

As the moratorium extended to the hard-hit tourism sector came to an end yesterday, the Sri Lanka Tourism Development Authority (SLTDA) requested trade associations to initiate one-to-one discussions with financial institutions for possible extension of the moratorium.

The SLTDA, in a notice to all trade associations, said it will be writing to respective banks on behalf of those who had sought intervention as a follow-up measure. The Tourism Ministry will present matters to the Cabinet seeking further intervention, it said.

The moratorium was offered to the tourism sector after the 2019 Easter Sunday attack for a period of six months, which was then extended three times due to the difficulties stemming from the COVID-19 pandemic. 

Following a proposal made by the Tourism Minister Harin Fernando, on a request made by  trade associations, 

Cabinet approval was given earlier this month to extend the moratorium. However, the decision has not been implemented as yet. The officials of Sri Lanka Tourism and trade associations met with Central Bank Governor to expedite the extension. However, the Governor had conveyed his inability to intervene and instruct financial institutions to extend the moratorium.

The Governor was of the opinion that it is a matter to be decided by the respective financial institutions and opined that the Central Bank will refrain from direct intervention or influencing the individual decisions of banks and finance companies, the SLTDA highlighted in its notice.

A meeting was then held with 39 banks and finance companies, chaired by the Secretary to the Ministry of Tourism and Lands, which did not bring in the expected outcome for the struggling sector. The SLTDA shared that all financial institutions were of the firm view that they could not agree to an extension of the moratorium as requested.

The United States expressed concerns about consistency and transparency in government decision-making, and above all, a lack of predictability,which led to the recent drop in Foreign Direct Investment (FDI), US Ambassador to Sri Lanka Julie Chung attended.

The US called upon the government to protect civic space and allow civil society organizations to operate freely. Economic reform needs to be intertwined with political reform in order to create a sustainable and prosperous economy for all of Sri Lanka’s people

Addressing 183rd Annual General Meeting he Ceylon Chamber of Commerce in Colombo recently she noted that Sri Lanka’s business environment and investment framework environment need improvements for the private sector to flourish.

To build peace and stability, Sri Lanka must protect democratic values such as the rule of law, respect for human rights for all, equal representation, and transparent government.

When these democratic values falter, the private sector, civil society, and the independent press must hold the government accountable for its leadership and stewardship of this country.

The right to peaceful protest must be upheld for all Sri Lankans and the culture of impunity must end. We call on the government to foster independent institutions that operate transparently and build public trust in the reconciliation process, to ensure all Sri Lankan’s have access to a fair justice system.

It is important to reduce red tape and make sure that there are no unreasonable obstacles to investors as they look for opportunities in Sri Lanka and bring in the foreign capital that the country desperately needs.

In 2020, U.S. foreign direct investment in Sri Lanka wasUS $13 million, bringing total active U.S. investment in the country at the time to $274 million.

She pointed out that there is room for improvement as only $17 million invested five years earlier in 2015 and US companies want a level playing field. A good regulatory framework. Trust that their arbitration and their contracts will be honored.

When you have that kind of strong investment climate, then companies will want to come. Making this a reality, however, will require difficult decisions on reforming unprofitable state-owned enterprises that often pose a barrier to entry to foreign direct investment, she claimed.

Sri Lanka must invest in its people. It is vital to have a workforce with gender parity, with women literally at the table and in leadership roles

Looking around this room, it’s clear we need more women in business and our work is not yet done. Women should enjoy equal access to funding for their small and medium-sized enterprises that operate in so many villages and towns across the island.

It is imperative that all Sri Lankans have access to quality public primary, secondary, and tertiary education, and training so that Sri Lanka retains and builds on the rightly earned reputation of having a highly educated, creative, and skilled workforce.

Sri Lanka looks forward to the development of the Kankasanthurai Port using US $ 40 million loan offered by India, Ports, Shipping and Aviation Minister Nimal Siripala de Silva said.

The Minister disclosed that Sri Lanka Ports Authority (SLPA) had done preliminary work, and would proceed with the rest of the work using the financial facility offered by the EXIM Bank of India.

Development work at the Kankesanthurai (KKS) Harbour is scheduled to be completed on 23 February 2023 with nearly 35% of the work being completed up to now since October 2020, 

 “There is some work meant for us to do. We have done. Then, the Indian side has appointed a consultant. Once we get that report, we will move ahead with the development of the port located in the northern tip of Sri Lanka. Currently, only small vessels can be berthed. We will develop it for the accommodation of bigger vessels,” he said.

Earlier, Fisheries Minister Douglas Devananda said cargo transportation between India and northern Sri Lanka would commence shortly.

The development of the port with the Indian assistance has long been in the pipeline. India offered financial assistance in this regard in the aftermath of the end of the war in May, 2009, and some works such as wreck removal was done at that time.

Sri Lanka Ports Development Authority (SLPA) Acting Chief Engineer – Development A.L.M. Nowfer stated that due to several unavoidable circumstances at present, the initial design period of nine months has been extended till 23 August 2021, after which the construction work will commence for 18 months as scheduled. 

“Due to the prevailing pandemic condition in Sri Lanka as well as in India, certain fieldwork in Sri Lanka/in-house work in India can’t be performed at the scheduled speed. Therefore, further time extensions for the consultancy contract may have to be granted subject to providing valued justifications by the consultant,” Nowfer said.

Nowfer highlighted that there are five main activities, namely: the construction of a new commercial berth, Pier No. 3 (size 167 m x 22 m); rehabilitation of the existing breakwater (1,400 m); rehabilitation of the existing Pier No. 1 (size 96 m x 24 m); construction of Pier No. 2 (extension of existing Pier No. 1, size 85 m x 24 m); and finally, the completion of infrastructure facilities such as navigational aids, a concrete road on the breakwater, etc.

“As per the project management consultancy contract signed between the two parties (Sri Lanka and India), the project duration is 39 months in total: the design work is nine months, construction work 18 months, and the defect liability period is 12 months,” he added. 

Furthermore, to fund the project work, the Government of Sri Lanka has entered into a dollar credit line agreement with the Export-Import (EXIM) Bank of India and obtained financial assistance of $ 45.27 million.

As per the decision of the Government to position the KKS Harbour as a main commercial port in Sri Lanka, the Cabinet of Ministers granted approval to further develop the harbour in February 2020, Co-Cabinet Spokesperson and Plantation Industries and Export Agriculture Minister Dr. Ramesh Pathirana said.

The proposal was submitted by former Ports and Shipping Minister Johnston Fernando to acquire 50 acres of land adjoining the Kankesanthurai Harbour for the Sri Lanka Port Authority (SLPA).

Dr. Pathirana further said that Cabinet approval was granted to acquire 15 acres of public land and 35 acres of privately owned land for this purpose. The privately owned land will be acquired by paying compensation as specified under the provisions of the Land Acquisition Act.

The Indian High Commission in Colombo,  stated that with the assistance of the Indian Government, Kankesanthurai would become a bigger and better port and be able to function as the hub of economic development in the Northern Province.

Subsequently, once fully functional, the KKS Harbour will be the nearest port for all eastern ports in India, as well as for Myanmar and Bangladesh.