Sugath Kulatunga

Debt on ISBs continues to be the bugbear in the economy. It is on record that the Yahapalanaya regime borrowed on ISBs 12.4 billion US dollars at high rates of interest. The financial wizards of yahapalnaya claims that these high cost funds were used to settle loans taken by the Manida government. Accoding to Central Bank statistics total Foreign Debt at the end of 2015 was Rs 3,544,031 million out of which Project loans were Rs 2,180,388.

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/otherpub/public_debt_management_in_sri_lanka_2017.pdf

It is unlikely that high cost ISB funds would have been used to settle low-cost long-term project loans.

According to the Central Bank report on PUBLIC DEBT MANAGEMENT IN SRI LANKA – 2017 at para 2.5.8. on the Usage of Foreign Debt it is noted that

the debt raised through external sources in 2017 was mainly used for the purposes of development of economic, social and administrative services in the country. Substantial investment in the form of enhancing the capacity and productivity of the economy also aimed from foreign financing during the year. Out of the total outstanding external debt at end 2017, 51.58 per cent was utilized for the development of economic services. Meanwhile, 8.91 per cent and 1.33 per cent of total external debt had been utilized for the development of social services and import of commodities, respectively, during 2017. Further, a share of 22.07 per cent of total external debt at end 2017 was used for the development of transportation system of the country including roads and bridges (15.47 percent) and ground transport (6.60 per cent)”.

The same report of 2019 at para 2.5.8 states that the debt raised through external sources was mainly used for the development of economic services which accounted for 45.93 per cent of outstanding external debt at end 2019. Two main sectors that were beneficial through such developments were industrial and construction sector (28.72 per cent) and service sector (11.17 per cent).

External debt was also deployed to improve social services and in importing commodities and food, that accounted for 7.74 per cent and 0.82 per cent of the total external debt during the year respectively. Further, a substantial share

of foreign debt (16.07 per cent) was utilized for the development of transportation systems including roads and bridges while development in ground transportation accounted for 5.52 percent of the total external debt.”

It is not clear whether development of economic services” was in the way of projects. But the fact is that external debt was also deployed to improve social services and in importing commodities and food.

Towards the end of the Yahapalana government there was a flurry of ISB borrowing. In 2019 GOSL tapped the international capital market with the issuance of new International Sovereign Bonds (ISBs) worth US dollar 4,400 million during 2019 in March and June. The Government issued its 13th ISB in March 2019 and raised US dollars 2.4 billion which was of two tenures (i) US dollars 1.0 billion with a 5-year maturity at a yield of 6.85 per cent and (ii) US dollars 1.4 billion with a 10-year maturity at a yield of 7.85 per cent. In June 2019, US dollars 2.0 billion in total was raised by issuing US dollars 500 million with a 5-year maturity at a yield of 6.35 per cent and US dollars 1.5 billion with a long 10-year maturity at a yield of 7.55 per cent per annum.(PUBLIC DEBT MANAGEMENT IN SRI LANKA – 20195)

it is clear that the immediate cause for Sri Lanka’s bankruptcy is the exposure to international sovereign bonds (ISBs) issued at high interest rates. It is reported that in 2021, ISBs accounted for 70 percent of the government’s annual interest payments. It is the settlement of the 500 million US$ ISB in January 2022 which triggered the bankcruptcy of the country by 12 April with the temporary suspension of repayment of all external debt.