More than 54 percent of outstanding government debt is payable after 15 years, Deputy Finance Minister Dr. Sarath Amunugama says, adding that the Debt to GDP ratio could be reduced by inducing higher growth and gradual reduction of the deficit.
"Our Debt to GDP ratio has fallen to about 80 percent of GDP. Our intention is to bring this below 70 percent of GDP. This can be done only by maintaining a higher economic growth of well above 6 percent, gradual reduction in Budget deficit and managing well distributed debt portfolio, not only in terms of domestic and foreign debts but also in terms of proper maturity structures. This is what the Government has done in the last several years, Dr. Amunugama told parliament late last year.
The Central Bank earlier this month said the Debt to GDP ratio had increased to 81 percent in 2012 from 78.5 percent in 2011. This increase was mainly due to a one-off increase of about Rs. 278 billion in public debt on account of the depreciation of the rupee, however, the government’s debt targets for 2012 have gone off target.
"While the Government has reduced the debt to GDP to 80 percent of GDP, most of our debts are payable over 15 – 20 years time. Out of the total debt stock, only 0.13 percent is payable within one year, and 54 percent is payable over 15 years. Therefore taking the entire debt stock and dividing that by this year’s (2012) GDP is not going to give a justifiable indication of economic health for us," Dr. Amunugama said.
"Debt to GDP ratio matters for countries where, the Debt is payable in the shortest period of time, and we don’t have such risks. Further, we don’t have commercial or other debt instruments which are on demand. Even the Commercial loans the government has raised are now at ten year maturity instruments. They are currently trading around five percent though we raised this at around seven percent. This improvement is because the Sri Lankan economy remains buoyant and reflects a positive outlook. The Government’s entry to the international capital market has established a benchmark, for the country’s, financial sector internationally.
"Following the issue of Sovereign Bonds by the Government, the Bank of Ceylon and the private sector have lined up their entry as well. The leading corporate sector and the development banks are expected to move in this direction. When this happens, excessive demand for borrowing from domestic banks will decline. When that happens, small and medium sector’s access to finance will improve and that is how the economy will move.
"The attempt by the Government to systematically bring down fiscal imbalances excessive borrowings, public debt, money supply, inflation and unemployment are economic aspects that every one of us in Parliament must value. And this Budget (2013) must be viewed in the context these positive outcomes although all the risks and problems in Sri Lanka cannot be resolved with just one single Budget," Dr. Amunugama said.
According to latest available data, the government’s total outstanding debt stock as at end September 2012 reached Rs. 6,262 billion, an increase of 23.52 percent from a year earlier. Domestic debt grew 16.15 percent to Rs. 3,280.4 billion while foreign debt grew 32.79 percent to Rs. 2,981.5 billion.
Total outstanding government debt grew by Rs. 1,128.6 billion during the first nine months of last year. According to the 2012 budget, the government’s borrowing limit for the full year was Rs. 1,104 billion.
According to the 2012 budget, the government’s debt requirement for 2012 was Rs. 776.2 billion from domestic sources and Rs. 327.8 billion from external sources. However, by end September 2012, the domestic debt component grew by Rs. 476.2 billion from end December 2011 while foreign debt increased by Rs. 652.2 billion.
The budget deficit for the first nine months of last year reached 6.44 percent of GDP. The full year target is 6.2 percent.
Last Friday, Treasury Secretary Dr. P. B. Jayasundera said the government may ask the International Monetary Fund for US$ 1 billion for fiscal support as the 2013 budget outlines there would be no foreign commercial borrowings (sovereign bond issues) next year.
The Central Bank has consistently cautioned the government that a growing fiscal deficit and debt would undermine macroeconomic stability. Economists too have warned that growing domestic public sector borrowings would not be healthy.
"The expansion of credit to the public sector, which includes the government and public corporations remains a concern. Being less sensitive to changes in interest rates, net credit to government depends on the budget deficit and the government’s strategy to finance the deficit, while credit to public corporations depends mainly on the operational losses they incur," the Central Bank said in its report ‘Recent Economic Developments: Highlights of 2012, Prospects for 2013’ released earlier this month.
"It is essential that public sector borrowing from the banking sector is restricted to the budgeted levels, in order for the monetary authority to maintain monetary expansion at the targeted level, which is essential for the success of monetary policy implementation," the Central Bank said.
Central Bank Governor Ajith Nivard Cabraal last week said the bank was not in favour of growing public sector borrowings, and urged authorities to adjust energy and transportation costs to realistic levels.