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Lanka could fall into huge debt trap

By Bandula Sirimanna

Post-war Sri Lanka’s foreign debt service is to double next year to an estimated US$ 1,539.4 million (Rs. 171 billion) from $ 810 million (Rs.90 billion) last year, Finance Ministry officials said.

They said the debt service payment this year was expected to be $954.5 million (Rs.106 billion).
Debt servicing which comprises both principal and interest payments is what a country pays annually as a part of its total dues. Sri Lanka’s total foreign debt is much higher than the debt servicing payments, and has increased substantially in recent years owing to rising spending and loan repayments.

The officials said when the government raised $500 million (Rs. 55 billion) from a sovereign bond in 2009, almost $300 million (Rs 33 billion) was used to pay off foreign loans while it is unclear as to how the balance $200 million was utilised.

When contacted by the Sunday Times, Central Bank Assistant Governor C P J Siriwardene, who oversees state debt, said the President had given his approval as the Minister of Finance to raise these bonds. So far Sri Lanka has sold two $500 million dollar 5-year bonds. For all these instances approval of the President had been given, and the country had also raised $1 billion in a sovereign bond issue in 2010, he said.

Sri Lanka recently borrowed $810 million from Exim Bank of China to fund the second-phase development project of the Port of Hambantota with the China Harbour Engineering Company Ltd and the Sri Lanka Port Authority signing an agreement for the second-phase of project. The construction would be completed in 36 months, officials said.

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