$1.2 Billion Yearly Commercial Debt Payments for Next 20 Years

COLOMBO (News 1st); Dhananath Fernando, Chief Executive Officer of the Advocata Institute, has stressed on the urgent need for economic reforms to address Sri Lanka's economic position. 

Speaking on the country's economic challenges, Fernando emphasized that despite 76 years of independence, Sri Lanka remains a developing country due to poor financial management and unsustainable borrowing practices.

"The problem is very simple. We borrowed too much money in dollar terms, in short maturity, and invested in infrastructure which did not generate any revenue," he said.

Fernando pointed out that a significant portion of the money borrowed since 2010 was used to pay interest and manage exchange rate variations, rather than generating revenue through productive investments. 

He noted that 50% of the borrowed funds were used for interest payments, while 26% accounted for exchange rate adjustments. This unsustainable borrowing has led to a situation where the country must pay approximately USD 1.2 billion annually for the next 20 years to service commercial debt alone.

Highlighting the current budgetary constraints, Fernando explained that Sri Lanka's expenditure far exceeds its income, with a substantial portion of revenue being used to pay interest on debt. 

He stressed that the only viable solution for the country is to focus on economic growth. "Growth is the only answer," he stated, emphasizing the need for comprehensive reforms to stimulate the economy.

Fernando identified state-owned enterprise (SOE) reforms as a non-negotiable priority. He argued that the losses incurred by SOEs are diverting funds away from critical sectors such as education and healthcare. 

He cited the example of a single SOE absorbing USD 500 million in the previous year's budget, an amount equivalent to the entire allocation for the healthcare workforce in 2019.

In addition to SOE reforms, Fernando called for improvements in trade and investment policies. He also highlighted the challenges posed by an aging population, which will increase pension expenditures and further strain the government's finances. He warned that Sri Lanka might face a second debt restructuring due to these compounded issues.

Fernando stressed the importance of sound monetary policies and the need for a strong economic foundation to navigate the country's financial challenges.