State Minister of Finance Ajith Nivard Cabraal who made his way into Parliament as a brand new member disclosed the level of economic meltdown occurred during the Good Governance government in his debut speech in Parliament yesterday (27).
He also leveraged his speech as an opportunity to bring down misconceptions among the Opposition MPs on the management of expenditure allocated by the Vote on Account tabled in Parliament.
“In my observation at the economy as a public servant for nine years and a citizen for five years, it is easy for me to make this analysis.”
“In the Vote on Account we tabled in Parliament are Rs. 987 billion allocated for recurrent expenditure, Rs. 334 billion for capital expenditure and Rs. 423 billion for debt settlement. We are aware that this is a huge amount of money. Therefore, some members of the Opposition may be of the belief that we may not be able to manage it.”
“Earlier, when there was a war in the country, followed by many other problems, the Oppostion believed that we would not be able to manage this,” Cabraal said, pointing out that this was never the case then, and in the present, he as the State Minister of Finance has a responsiblity to express to this House, the country, as well as the world how to overcome this crisis and move forward.
Response to criticism by Opposition aiming the Economic Meltdown
State Minister Cabraal elaborated on the state of economic growth in Sri Lanka in the period between 2006 and 2014 and the situation thereafter.
“From 2006 to 2014, the average economic growth rate in our country was 6.4. This was the highest value ever in history. However, during the next five years under the Good Governance the average economic growth rate fell down to 3.7 percent. Hence, the economic growth rate in 2019 was 2.3 percent, the lowest compared to every year, except one, since open economy was introduced.”
“The Per Capita Income indicated a drop for the first time after twenty years, we witnessed. According to CB reports, Per Capita Income fell by US$ 227 last year. In stark contrast, this had increased by US$181 in 2006, US$191 in 2007, US$397 in 2008, US$43 in 2009, US$690 in 2010, US$381 in 2011, US$226 in 2012, US$258 in 2013, and US$210 in 2014,” Cabraal disclosed the figures, thereby pointing out that the economy in which an annual growth of about US$ 200 was evident during those years drastically fell down in the five years followed.
“I would like to remind you in particular that many people have expressed different views in this House on the debt burden. Sometimes, they were not challenged. But, I would like to remind the Opposition that I too was a former governor of the Central Bank for nine years.”
How debt burden surged
“At the end of 2005, our country’s debt burden was 91% compared to the Gross Domestic Product (GDP). Central Bank reports stand for it. However, by developing all the infrastructure, waging a war and facing all the crises in the country and in the world, that debt burden had been curbed down to 72% by the end of 2014. During the previous five years, however, the debt burden was being increased at a continuum, despite no existence of such crises. We witnessed that the debt burden rose up to Rs. 8,599 billion in 2015, Rs. 9,478 billion in 2016, Rs. 10,702 billion in 2017, Rs. 12,030 billion in 2018 and Rs. 13,031 billion in 2019,” the State Minister added.
In his emphasis, Cabraal continued divulging that the debt burden of Sri Lanka had surged by 86.8% compared to the GDP, reminding that the trend of reducing the debt burden from 91% to 72% achieved during the 2006 – 2014 era burying harship and discipline had completely been reversed by the previous government.
Unnecessary surge in interest rates is an additional burden on the economy by billions!
“We need to voice on the interest rates. In 2014, all interest rates were in single digits. This was huge investments flowed into the country. However, the interest rates have been increased since 2015, unnecessarily increased. The Bond Scam alone surged it by 3% percent. Then what happened? The amount of debt we owed had surged every year. I will also table the relevant statistics in this regard.”
“In 2014, we paid Rs. 436 billion as interest on debt. In 2015, this had increased to Rs. 510 billion. In 2016, Rs. 611 billion. In 2017, Rs. 736 billion In 2018, Rs. 852 billion, and in 2019, Rs. 901 billion. Honourable Speaker, the total interst expenditure had doubled in five years. In result, the entire structure of debt servicing has come under severe stress,” Cabraal said in his speech.
The cost of interest was only 4.2% of the GDP in 2014, he went on, adding that it had surged to 6% by 2019, indicating a massive figure. At this degree, the country was compelled to face a situation in which the debt burden was no longer bearable, Cabraal emphasised.
Rupee depreciated by a maximum value during Good Governance
Cabraal also tabled statistics indicating the depreciation of Sri Lankan Rupee throughout history since the open economy. The depreciations accordingly were 12.6% per annum from 1977 to 1986, 7.1% per annum from 1987 to 1996, and 6% per annum from 1997 to 2005, he pointed out, reminding however that the devaluation from 2006 to 2014 was only 2.8%. The depreciation surged back to devaluation up to 6.7% from 2015 to 2019, he divulged.
Accordingly, the State Minister pointed out that due to the depreciation of Rupee in the recent past alone, the debt burden of Sri Lanka surged by Rs. 1772 billion.
In response to vast criticism from the Opposition on the printing of notes, Cabraal said, “There were times when monies need to be printed. Many countries in the world have printed money in the face of the COVID-19 Pandemic. But this is not what I wish to remind you of. During the past period from 2015 to 2019, except for two months, the amount of money that the government had collected monthly by printing through the CB had increased from Rs. 65 billion to Rs.210 billion. In some cases, up to Rs. 300 billion.”
This is indicative of the fact that the government had obtained more than the required amount of treasury bills from the CB, Cabraal suggested. According to information from January to July in 2014, the then government had not printed a single Rupee in a single month, he added, reminding that the successor, starting from February 2015, had obtained monies through printing, the same group who speak ill of the present government.
Foreign Reserves ruined!
“Claims were made that foreign reserves were strong during the previous government. But let me remind you, that in 2010 our country had foreign reserves of only US$ 2.7 billion. By the end of 2014, these had increased to US$ 8.2 billion. These people were not even able to exceed that value thereafter. In short, by the end of 2015, foreign reserves had shrunk down to US$ 7.3 billion, US$ 6 billion by 2016, US$ 7.9 billion by 2017, US$ 6.9 billion by 2018, and 7.6 billion by 2019,” he said.
This is drastically in contrast to the predicted amount of reserves up to US$ 15 billion by 2019, Cabraal pointed out.
“At the end of 2014, US$ 3450 million had been invested. This had been reduced to US$ 500 million by the end of 2019. Investors leave the country when there is a loss of credibility. We are working to bring them back to this country. Honourable Deputy Speaker, you are about to see in the next few weeks that we are working to bring that money back to Sri Lanka through new tools and proposals.”
Crash in Exports
Contrary to the Opposition’s claim that the exports have been crashed and their governance managed to surge it following GSP+ concession, Cabraal divulged that even after 5 years of governance, the exports remained at the same level of 2014, citing CB reports. The previous government had not been able to increase the country’s exports by a single dollar, he pointed out.
“Overall, exports from 2015 to 2019 were US$. 11.1 billion. The same amount was recorded as export earnings in 2014 as well,” he said.
“Claims were made that the occurrence of job loss is in place due to the COVID-19 Pandemic. I would like to remind you that according to the CB records, the unemployment rate in our country at the end of 2014 was 8.42 million. The government which had promised to create one million new jobs by 2019 had reduced unemployment to 8.181 million. That was just it. They managed to curb it down by two hundred and eighty thousand. That being said, they may be surprised to learn that these employments were kept safe despite the setbacks caused by the COVID-19 contagion.”
Our hope is for a V shape recovery. This means working for an economy that can recover very quickly.
The State Minister of Finance also told the Chambers that he is ready to face the challenge of reviving the international rankings which have plummeted in the last five years. For the first time in Sri Lanka, a list of responsibilities in this regard has been issued to all Ministries, considered of which none can slip away from the responsiblity, he added.
“We will be changing this situation. We would be using the tools to bring the monies needed in this regard. Therefore, I would like to remind you that the bliss of those who think that we will not be able to manage this economy is only short term.”