PRESS RELEASE

All borrowing since 2016 used to settle Rajapaksa loans –

Finance Minister Mangala Samaraweera

On 9th January 2015, as the Rajapaksa family took-off to Medamulana, they flew
past many of their white elephants. In Colombo, it was the Lotus Tower. As they
landed, the empty and unused Mattala Airport, Hambantota Port, Cricket
Stadium, IT Park, Cinema Park and Conference Hall must have come into view.

The Treasury Building – the nerve center of Sri Lanka’s economy – probably went
unnoticed. That is no surprise. For inside its books and coffers contained a rather
inconvenient truth. And a tragic one. The Rajapaksas left Sri Lanka in a debt trap.
The Rajapaksas borrowed more foreign debt - at higher interest rates - than any
previous government. That would not have been such a complete disaster if the
debt was invested in high-return projects. Instead these expensive funds were
spent on White Elephant construction and consumer imports.

When the Rajapaksas assumed office in 2005, government debt per citizen was
Rs. 113,131. When they left it was Rs. 355,708. The real picture is even worse.
Until 2007, virtually all of Sri Lanka’s foreign debt was on concessional terms.
But from 2007 onward, Sri Lanka started to commit the ‘original sin’ of
borrowing in a foreign currency loans on expensive commercial terms. In fact,
in 2013, the Rajapaksa government directed the National Savings Bank to obtain
$750 million from international markets at the highest ever interest rate of 8.9
percent. This is at a time when the global benchmark rate for that type of loan
was 1.3 percent. The Chairman of NSB at the time, a respected civil servant, was
removed and replaced with a batchmate of the then Treasury Secretary on the
instruction of the then Finance Minister, Mahinda Rajapaksa.

2005 2010 2014 2018

Government
debt per citizen 113,131 222,019 355,708 552,724
(LKR)
Primary
Surplus, % of -2.1 -1.5 -1.5 0.6
GDP
Exports, goods
and services, % 32.3 19.6 21.1 22.8
of GDP
FDI (USD Mn) 272 516 1,635 2,136

The irresponsibility and mismanagement does not end there. While the
government went on a borrowing spree on international capital markets,
government revenue plummeted. In 2005 Sri Lanka’s tax-to-GDP ratio was 13.7
percent. By 2014, it was 10.1 percent, one of the lowest in the world. As a result,
expenditure necessary for long-run growth such as health and education
suffered. And Sri Lanka needed to borrow more just to repay the Rajapaksa
loans.
In 2014 interest payments amounted to Rs. 436 billion, 24 percent of
government expenditure. But because of all the Rajapaksa debt, especially
expensive foreign debt, today interest payments are 31% share of government
spending. In order to pay salaries, keep the lights on in hospitals and run the
country we have had to borrow just to pay back our old loans. The whole country
should know that since 2016, all the money we have borrowed has been to pay
back old loans.

Perhaps worst of all, the much anticipated post-war boom never materialized.
Sri Lanka lost GSP+ and a fish export ban to the EU was imposed. We were on
the verge of targeted sanctions. The words “human rights abuse”, “war crimes”
and “dictatorship” were the words associated with Sri Lanka in the international
media at that time. The illegal ouster of the Chief Justice, expropriation of
private property, stock market pump-and-dump and culture of bribery and
impunity forced foreign and local businesses to invest elsewhere. Vietnam,
Bangladesh and Ethiopia prospered. We stagnated.

There is no better example of the Rajapaksa’s mismanagement than airlines and

airports. They took a profitable, well-managed and rapidly expanding airline and
ran it to the ground. After they nationalized Sri Lankan because the CEO did his
job and followed the rules, it made consistent losses. The lease agreements they
entered into are so draconian that the airline will post losses for some years to
come. And the less said of Mihin Lanka the better. Mattala Airport was built
using 209 million dollars of foreign loans. Loans we still pay interest on. Yet the
airport has been empty for years.
What right does a President responsible for the hedging scandal, Greek
investments scandal and the most corrupt and wasteful administration since
Independence have to talk about handling state finance?

Despite this legacy, we have stabilized the economy. Last year, Sri Lanka had its
first non-trivial primary surplus in 63 years. This means that, leaving aside
interest payments, Sri Lanka’s revenue was greater than its expenditure for the
first time in over six decades. No other government has succeeded in achieving
this target. This also means that, since 2016, all government borrowings have
been used to settle debt. Not for any other expenditure.

Despite the coup and the Easter bombing the economy has held-up. We have
put some key fundamentals in place. Government revenue, measured as a
percentage of GDP, is up by 16 percent from end-2014. Exports, again as a share
of GDP, rose from 21 percent in 2014 to 23 percent today. Capital expenditure
on health doubled and no government increased education spending as quickly
and as substantially as we have.

There have been countless infrastructure projects: the Moragahakanda and Kalu
Ganga Dams and irrigation schemes, and Uma Oya multi-purpose development
project. Under the Gampereliya scheme, more than 105,000 projects were
implemented across 160 electorates. To date, nearly 40,000 roads and bridges
have been built to facilitate rural and urban transportation. Nearly 1500 projects
have been implemented across the island to renovate or construct sanitary
facilities in schools. Enterprise Sri Lanka has disbursed nearly Rs. 65B in the form
of concessional loans to entrepreneurs in the country, with capital flowing into
sectors including agriculture, services, and manufacturing for the domestic and
export markets. The LRT and Colombo Elevated Highway will go a long way to
solving traffic problems in the city.

As you all know, government salaries have more than doubled, in addition to
the 2500 rupee allowance. From 1st January, the Presidential Commission Report
on salary anomalies will be implemented. And perhaps the greatest benefit of
all is the control of inflation – the cost of many essential goods including food
items and fuel have fallen.

Loan amount Interest rate Share of Samurdhi

(USD) budget
(2018)
Mattala 243.7 million 2% 100%
Hambantota
International
Airport – Stage 1
Hambantota Port 1,651 million LIBOR + 4% 678%
Development
Project - Phase II
Lotus Tower 104 million LIBOR + 4% 43%

Sooriyawewa 25 million ~3% 15%

International
Cricket Stadium*
*See Auditor-General’s 2017 Annual Report for details. Rupees converted to USD at 2017 FX rates. Interest
estimated using 10-year repayment schedule.

2019.10.06