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Message: <blockquote data-quote="rocat90" data-source="post: 19929037" data-attributes="member: 452168">Sri Lanka’s debt situation: What are our options?                                     The external financing situation for Sri Lanka is certainly a big worry  for both the Government and the private sector. This is largely due to  monstrous financial profligacy of the past not yet fully explained.  However, it is also due to a large trade deficit and a drop in exports  and worker remittance.<img src="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/24223809/65dfh.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" />     In 2015, our trade deficit was around $ 8.5 billion. Worker remittance  was around $ 6.9 billion. Capital flows were negative. We had a balance  of payment deficit of $1.5 billion. The only upside in 2015 was tourism –  $ 3 billion – a 24% increase. If the trade deficit can be managed to  around $ 7 billion, the higher income from tourism, exports and  technology services could help our balance of payments to have a  surplus.     However, there are many other challenges for our external finances like  the stability of the rupee, declining reserves and capital flows. Our  export income is only around 55% of our imports. Therefore it is a must  that Sri Lanka in the short-term limits the foreign debt financing only  for projects that have multiple benefits for the economy.      Furthermore, we need to focus more on debt refinancing, debt swaps,  work hard to attract more FDI by introducing investment friendly  policies and restructure the BOI to support that drive and more  importantly manage the export trade supply side of the equation. <img src="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/24223808/647.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" />     Government debt     Sri Lanka’s total Government debt at the end of 2015 was $ 81 billion;  out of this foreign debt was around 60%. According to Central Bank data,  our total debt will touch $ 103 billion this year – around 98% of  revenue and – foreign debt will increase to $ 57 billion this year.      Today public debt is almost 100% of GDP. Therefore there is lot of work  that needs to be done given that we have BOP deficit of $ 1.5 billion  from 2015 to manage first. Many of the short-term loans got at  exorbitant rates taken for unproductive projects is one of the root  causes for this situation.      For e.g., the Mattala Airport debt arrangement needs to be renegotiated  and those assets needs to be productively used for the betterment of  society. The IMF Structural Adjustment Facility if effectively  negotiated could help the economy to ride over this crisis, however the  policy direction to improve the supply side is a must as well as  tightening of fiscal and monetary policies.           Way forward for Sri Lanka     While the Government is looking for short-term options to ride over  this crisis like the recent currency swap with India for $ 1.1 billion  and the proposed one with China for $ 1 billion, all these arrangements  have their cost and political consequences.     It is important from now on to only invest in ongoing projects if there  are clear benefits over cost and projects that don’t drain our foreign  exchange reserves. Some of the big-ticket projects like the Megapolis  and mega road development projects may need to be phased over the next  few years.      However, if we are to attract more FDI, we need to invest more on  education and skills to improve the productivity of the workforce and to  improve our inward remittances, given that the dependency of inward  remittance may no longer be sustainable in the long term.     FDI instead of debt financing and foreign borrowings is what we need:  That however would require a conducive investment climate that protects  equity rights, and property rights and deregulation. Sri Lanka urgently  needs a medium-term plan to increase commercial exports and services.     The Sri Lankan economy has faced much bigger challenges before.  Therefore, given its strategic location within South Asia and the  goodwill we have earned in the last 12 months with the international  community, Sri Lanka should look to exploit those opportunities to  improve the living standards of all the people.           (The writer is a senior company director.) </blockquote>

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