Connect with us

Features

Options for Foreign Debt Management in Sri Lanka: Can we escape from IMF/ISB Debt Trap?

Published

on

by Luxman Siriwardena,
Managing Director,
Veemansa Innitiative,
Think Tank and Advocacy Group

 

The setback due to the pandemic has aggravated some of the perennial macro-economic and sectoral problems in Sri Lanka. For example, borrowing and accumulating external debts has been a practice of successive governments since 1978, which was the year of partial liberalization of the economy. During the early periods, when Sri Lanka was considered a low-income country, we were entitled to substantial grant aid as well as concessionary finances.

This relatively low interest facilities and lenient conditionalities provided incentives for the governments to keep borrowing for many development projects, from bi-lateral and multi-lateral lending agencies, irrespective of inflated costs of many of these projects. In most of these cases, financial benefits also have spilled over to Sri Lankan politicians, bureaucrats, and technocrats. Notwithstanding such leakages, these foreign funded projects increased the availability of more sophisticated infrastructure and utilities in sectors such as, electricity, highways, drinking and irrigation water, as well as the Colombo port and airports. In addition, education, agriculture and health were the prime targets of both Sri Lankan policy makers and donors/lenders.

There was a period when Sri Lanka was termed as “a Donor Darling” (see figure).

Sri Lanka became a darling of the Western donors primarily due its subservience to the West under Jayawardena-Premadasa regime). However, since we attained lower-middle income country status, concessionary funding has not been available and therefore, most borrowings have been at commercial or near commercial lending rates. In this context, the country has accumulated over US$ 34.7bn debt1 up to 2019. These borrowings have been for development projects, import of consumption items and direct budgetary support to meet current expenditure, including debt servicing. The current debt situation.

At the moment, one of the most critical challenges for the Rajapaksa administration is managing or preferably reducing Sri Lanka’s debt while meeting the current level of foreign exchange requirements and hopefully implementing necessary development projects.

While the selected development projects are generally presented to the multilateral donors; World Bank and ADB as well as bilateral lending institutions such as JICA, US-AID and similar institutions in China and European countries, seeking loan financing, the rates of lending are equal or closer to the market rates. Since 2007, borrowing through International Sovereign Bonds (ISBs), which became a common practice, has now emerged as the most serious challenge for the current government to ensure sustainability or reduction foreign debt.

The focus of this article is to discuss alternative methods of managing the debt in spite of the COVID-19 pandemic that has pushed almost the entire world (other than China) into a recession.

In this context, conventional economic policy pandits, academics and consultants recommend that the emerging economies such as Sri Lanka should seek the refuge in International Monetary Fund (IMF) Programmes. Based on the IMF guarantees the countries in foreign debt crisis will be eligible for further assistance from other multilateral and bilateral lenders, while qualifying for accessing the International Sovereign Bond Market. According to this prescription, without the support and blessing of the IMF, we have no way of securing sufficient funding for re-payment of maturing debt, balance of payment requirements or development programmes.

Since the election of the new government all our well-known economists, and many so-called experts have been promoting the above policy prescription as Sri Lanka is, according their assessment, at the verge of a default and economic collapse. Most if not, all these pandits were expecting the government will continue to proceed with the borrowing from the international markets subscribing to Samurai or Panda bonds. Surprisingly our conventional economic advisors are increasingly becoming impatient and critical of the Government for not negotiating with the IMF to enter into a programme which will be entitled and receive loan facility and more importantly in turn qualify for raising finance through ISBs. Does this process lead to a reduction of debt or payback of loans? Of course not, nor reduction of debt burden or the severity of the debt problem.

As an IMF programme is likely to impose conditionalities to meet the Fund’s debt sustainability parameters, the readers may perhaps understand that, this approach is not even to reduce the severity of the debt problem but for reducing the burden over the next few years by extending maturities probably through some form of ‘Grace Period’. The bottom line will be that Sri Lanka will continue to have challenging debt dynamics which I would like to call it as ‘IMF/ISB DEBT TRAP’ as long as we fail to achieve substantial increase of exports and FDI. In other words, we will merely be postponing and aggravating the debt problem unless we can accelerate growth by increasing production of tradable goods and services which will earn or save foreign exchange.

Cost of raising funds through International Sovereign Bonds

A sovereign bond is defined as a debt instrument issued by a national government to raise generally foreign currency requirements in case of countries such as Sri Lanka. Sovereign bonds are denominated in foreign currencies such as USD, the Euro, Japanese Yen and Chinese Yuan. The successful issue of ISBs require several steps engaging highly professional individuals and institutions including global banking giants. Under each of these steps many upfront costs are to be incurred by the government. A typical bond issue involves, fees (commissions) and other expenses. Three large components of the fees, according to a World Bank document are for the lead-managers, rating costs and legal expenses. Interestingly those transaction costs are paid at time of issuance (upfront). In spite of the competition among the banks there is little transparency specially with regard to bond issues of countries like Sri Lanka. Another major expense is often for obtaining a rating for each bond which is generally similar to the fee for the lead-managers. There are also expenses for legal counsel, marketing especially road shows, fiscal and paying agents and advisors. Cost will also depend on which markets are targeted for the road shows undertaken in major cities in developed market economies.

Throughout the Sri Lankan history of issuing ISBs people have only learned about the total value of the bond issues and subscribed but not the direct and indirect costs that have been incurred in the process, for example, officials of the Central Bank, Ministry of Finance, etc. will be travelling to several capitals in the world for negotiations, road shows and other associated events etc. incurring scarce foreign exchange of Sri Lanka. Of course it should have provided very tempting incentive for this approach

Some economists who are faithful followers of IMF policy prescriptions prefers to identify the IMF/ISB Debt Trap as the symptom not the cause of the problem. According to them the debt trap was caused by poor fiscal outcomes over many years and IMF/ISB debt was incurred to meet deficit financing.

In this article, the most pertinent and decisive issue to raise is, what should be the alternative policy recommendations of our learned economists. As we all are well aware if Sri Lanka qualifies to receive assistance from the IMF, such funding will be for as balance of payment support subject to certain conditionality which are likely to include; removal or reduction of subsidies, removal of import controls, non-strategic assets privatization, etc. and many such measures of government interventions.

Many, if not all these adjustments will be painful to the ordinary citizens and therefore, make it difficult to sell politically. If Sri Lanka for that matter, any other country in our predicament is not willing to go through an IMF austerity programme with its stringent conditionalities, what options are available for them. Let’s discuss what appears to be the economic management strategy of the current government. With the lockdown of the world economies and disruption of global value-chains, Sri Lankan government was compelled to ‘Close the Economy’ to some degree. Subsequently, the government policy makers seem to be implementing a fairly well-managed import administration scheme and associated measures to ensure enhanced foreign exchange savings. Current import management scheme has selectively targeted non-essential ‘big-ticket’ items.

In order to prevent further deterioration of the debt situation the government seems to be minimizing new borrowings for implementation of numerous development projects with commercial characteristics. Both acceding to IMF austerity programme, as well as, controls imposed by the government will have contractionary impact on the local economy. Of course, second option will reduce the confidence of capital markets, foreign equity investors and even some local enterprises. Generally, IMF programs are sold to a government in-need of balance of payment support on the basis that agreement with the Fund would pave way for the country to achieve a higher sovereign rating and confidence of the investors in ISBs.

Pertinent question here is, as learned economists, professionals and advisors, are they in a position to develop an alternative development strategy for Sri Lanka in order to overcome the current difficulties reducing the severity of the debt burden created primarily through borrowings from ISBs. It appears that the, current administration is developing a strategy that will cause less pain to the people than under an IMF program and have more positive outcomes in terms of output, employment and incomes.

Unfortunately, however, in the past, we have rarely seen Sri Lankan policy makers or even academics develop alternative concepts or strategies instead of repeating what they have learned as classical, neo-classical or Keynesian schools and reinforced by the training programs conducted by multilateral or bilateral lending agencies.

In conclusion, let me quote once again from my recently published article;

“Whatever the reasons are, instead of thinking independently on their own most of our economists parrot their mentors in the west for short-term gains like easy recognition and self-fulfillment PROMOTING THE SAME FORMULA AGRAVATING the vicious circle and perpetuating the misery of our people. Irony is that when a solution is needed the only thing some of our experts are capable of recommending is to seek refuge in borrowing from multilateral or bilateral lending agencies. Most Sri Lankans need to be reminded that, Sri Lanka has already gone under 16-IMF Programs and have reached the current predicament. This reminds us the famous saying attributed to Einstein that “insanity is doing the same thing over and over again and expecting different outcomes’’.

Signs are that the current administration is deviating from the orthodoxy and searching for innovative and pragmatic development path.

(Article is based on a key-note address delivered by the writer at the 08th International Research Conference conducted by the department of Economics and Statistics, University of Peradeniya)



Features

Rethinking post-disaster urban planning: Lessons from Peradeniya

Published

on

University of Peradeniya

A recent discussion by former Environment Minister, Eng. Patali Champika Ranawaka on the Derana 360 programme has reignited an important national conversation on how Sri Lanka plans, builds and rebuilds in the face of recurring disasters.

His observations, delivered with characteristic clarity and logic, went beyond the immediate causes of recent calamities and focused sharply on long-term solutions—particularly the urgent need for smarter land use and vertical housing development.

Ranawaka’s proposal to introduce multistoried housing schemes in the Gannoruwa area, as a way of reducing pressure on environmentally sensitive and disaster-prone zones, resonated strongly with urban planners and environmentalists alike.

It also echoed ideas that have been quietly discussed within academic and conservation circles for years but rarely translated into policy.

One such voice is that of Professor Siril Wijesundara, Research Professor at the National Institute of Fundamental Studies (NIFS) and former Director General of the Royal Botanic Gardens, Peradeniya, who believes that disasters are often “less acts of nature and more outcomes of poor planning.”

Professor Siril Wijesundara

“What we repeatedly see in Sri Lanka is not merely natural disasters, but planning failures,” Professor Wijesundara told The Island.

“Floods, landslides and environmental degradation are intensified because we continue to build horizontally, encroaching on wetlands, forest margins and river reservations, instead of thinking vertically and strategically.”

The former Director General notes that the University of Peradeniya itself offers a compelling case study of both the problem and the solution. The main campus, already densely built and ecologically sensitive, continues to absorb new faculties, hostels and administrative buildings, placing immense pressure on green spaces and drainage systems.

“The Peradeniya campus was designed with landscape harmony in mind,” he said. “But over time, ad-hoc construction has compromised that vision. If development continues in the same manner, the campus will lose not only its aesthetic value but also its ecological resilience.”

Professor Wijesundara supports the idea of reorganising the Rajawatte area—located away from the congested core of the university—as a future development zone. Rather than expanding inward and fragmenting remaining open spaces, he argues that Rajawatte can be planned as a well-designed extension, integrating academic, residential and service infrastructure in a controlled manner.

Crucially, he stresses that such reorganisation must go hand in hand with social responsibility, particularly towards minor staff currently living in the Rajawatte area.

“These workers are the backbone of the university. Any development plan must ensure their dignity and wellbeing,” he said. “Providing them with modern, safe and affordable multistoried housing—especially near the railway line close to the old USO premises—would be both humane and practical.”

According to Professor Wijesundara, housing complexes built near existing transport corridors would reduce daily commuting stress, minimise traffic within the campus, and free up valuable land for planned academic use.

More importantly, vertical housing would significantly reduce the university’s physical footprint.

Drawing parallels with Ranawaka’s Gannoruwa proposal, he emphasised that vertical development is no longer optional for Sri Lanka.

“We are a small island with a growing population and shrinking safe land,” he warned.

“If we continue to spread out instead of building up, disasters will become more frequent and more deadly. Vertical housing, when done properly, is environmentally sound, economically efficient and socially just.”

Peradeniya University flooded

The veteran botanist also highlighted the often-ignored link between disaster vulnerability and the destruction of green buffers.

“Every time we clear a lowland, a wetland or a forest patch for construction, we remove nature’s shock absorbers,” he said.

“The Royal Botanic Gardens has survived floods for over a century precisely because surrounding landscapes once absorbed excess water. Urban planning must learn from such ecological wisdom.”

Professor Wijesundara believes that universities, as centres of knowledge, should lead by example.

“If an institution like Peradeniya cannot demonstrate sustainable planning, how can we expect cities to do so?” he asked. “This is an opportunity to show that development and conservation are not enemies, but partners.”

As climate-induced disasters intensify across the country, voices like his—and proposals such as those articulated by Patali Champika Ranawaka—underscore a simple but urgent truth: Sri Lanka’s future safety depends not only on disaster response, but on how and where we build today.

The challenge now lies with policymakers and planners to move beyond television studio discussions and academic warnings, and translate these ideas into concrete, people-centred action.

By Ifham Nizam ✍️

Continue Reading

Features

Superstition – Major barrier to learning and social advancement

Published

on

At the initial stage of my six-year involvement in uplifting society through skill-based initiatives, particularly by promoting handicraft work and teaching students to think creatively and independently, my efforts were partially jeopardized by deep-rooted superstition and resistance to rational learning.

Superstitions exerted a deeply adverse impact by encouraging unquestioned belief, fear, and blind conformity instead of reasoning and evidence-based understanding. In society, superstition often sustains harmful practices, social discrimination, exploitation by self-styled godmen, and resistance to scientific or social reforms, thereby weakening rational decision-making and slowing progress. When such beliefs penetrate the educational environment, students gradually lose the habit of asking “why” and “how,” accepting explanations based on fate, omens, or divine intervention rather than observation and logic.

Initially, learners became hesitant to challenge me despite my wrong interpretation of any law, less capable of evaluating information critically, and more vulnerable to misinformation and pseudoscience. As a result, genuine efforts towards social upliftment were obstructed, and the transformative power of education, which could empower individuals economically and intellectually, was weakened by fear-driven beliefs that stood in direct opposition to progress and rational thought. In many communities, illnesses are still attributed to evil spirits or curses rather than treated as medical conditions. I have witnessed educated people postponing important decisions, marriages, journeys, even hospital admissions, because an astrologer predicted an “inauspicious” time, showing how fear governs rational minds.

While teaching students science and mathematics, I have clearly observed how superstition acts as a hidden barrier to learning, critical thinking, and intellectual confidence. Many students come to the classroom already conditioned to believe that success or failure depends on luck, planetary positions, or divine favour rather than effort, practice, and understanding, which directly contradicts the scientific spirit. I have seen students hesitate to perform experiments or solve numerical problems on certain “inauspicious” days.

In mathematics, some students label themselves as “weak by birth”, which creates fear and anxiety even before attempting a problem, turning a subject of logic into a source of emotional stress. In science classes, explanations based on natural laws sometimes clash with supernatural beliefs, and students struggle to accept evidence because it challenges what they were taught at home or in society. This conflict confuses young minds and prevents them from fully trusting experimentation, data, and proof.

Worse still, superstition nurtures dependency; students wait for miracles instead of practising problem-solving, revision, and conceptual clarity. Over time, this mindset damages curiosity, reduces confidence, and limits innovation, making science and mathematics appear difficult, frightening, or irrelevant. Many science teachers themselves do not sufficiently emphasise the need to question or ignore such irrational beliefs and often remain limited to textbook facts and exam-oriented learning, leaving little space to challenge superstition directly. When teachers avoid discussing superstition, they unintentionally reinforce the idea that scientific reasoning and superstitious beliefs can coexist.

To overcome superstition and effectively impose critical thinking among students, I have inculcated the process to create a classroom culture where questioning was encouraged and fear of being “wrong” was removed. Students were taught how to think, not what to think, by consistently using the scientific method—observation, hypothesis, experimentation, evidence, and conclusion—in both science and mathematics lessons. I have deliberately challenged superstitious beliefs through simple demonstrations and hands-on experiments that allow students to see cause-and-effect relationships for themselves, helping them replace belief with proof.

Many so-called “tantrik shows” that appear supernatural can be clearly explained and exposed through basic scientific principles, making them powerful tools to fight superstition among students. For example, acts where a tantrik places a hand or tongue briefly in fire without injury rely on short contact time, moisture on the skin, or low heat transfer from alcohol-based flames rather than divine power.

“Miracles” like ash or oil repeatedly appearing from hands or idols involve concealment or simple physical and chemical tricks. When these tricks are demonstrated openly in classrooms or science programmes and followed by clear scientific explanations, students quickly realise how easily perception can be deceived and why evidence, experimentation, and critical questioning are far more reliable than blind belief.

Linking concepts to daily life, such as explaining probability to counter ideas of luck, or biology to explain illness instead of supernatural causes, makes rational explanations relatable and convincing.

Another unique example that I faced in my life is presented here. About 10 years ago, when I entered my new house but did not organise traditional rituals that many consider essential for peace and prosperity as my relatives believed that without them prosperity would be blocked.  Later on, I could not utilise the entire space of my newly purchased house for earning money, largely because I chose not to perform certain rituals.

While this decision may have limited my financial gains to some extent, I do not consider it a failure in the true sense. I feel deeply satisfied that my son and daughter have received proper education and are now well settled in their employment, which, to me, is a far greater achievement than any ritual-driven expectation of wealth. My belief has always been that a house should not merely be a source of income or superstition-bound anxiety, but a space with social purpose.

Instead of rituals, I strongly feel that the unused portion of my house should be devoted to running tutorials for poor and underprivileged students, where knowledge, critical thinking, and self-reliance can be nurtured. This conviction gives me inner peace and reinforces my faith that education and service to society are more meaningful measures of success than material profit alone.

Though I have succeeded to some extent, this success has not been complete due to the persistent influence of superstition.

by Dr Debapriya Mukherjee
Former Senior Scientist
Central Pollution Control Board, India ✍️

Continue Reading

Features

Race hate and the need to re-visit the ‘Clash of Civilizations’

Published

on

Australian Prime Minister Anthony Albanese: ‘No to race hate’

Australian Prime Minister Anthony Albanese has done very well to speak-up against and outlaw race hate in the immediate aftermath of the recent cold-blooded gunning down of several civilians on Australia’s Bondi Beach. The perpetrators of the violence are believed to be ardent practitioners of religious and race hate and it is commendable that the Australian authorities have lost no time in clearly and unambiguously stating their opposition to the dastardly crimes in question.

The Australian Prime Minister is on record as stating in this connection: ‘ New laws will target those who spread hate, division and radicalization. The Home Affairs Minister will also be given new powers to cancel or refuse visas for those who spread hate and a new taskforce will be set up to ensure the education system prevents, tackles and properly responds to antisemitism.’

It is this promptness and single-mindedness to defeat race hate and other forms of identity-based animosities that are expected of democratic governments in particular world wide. For example, is Sri Lanka’s NPP government willing to follow the Australian example? To put the record straight, no past governments of Sri Lanka initiated concrete measures to stamp out the evil of race hate as well but the present Sri Lankan government which has pledged to end ethnic animosities needs to think and act vastly differently. Democratic and progressive opinion in Sri Lanka is waiting expectantly for the NPP government’ s positive response; ideally based on the Australian precedent to end race hate.

Meanwhile, it is apt to remember that inasmuch as those forces of terrorism that target white communities world wide need to be put down their counterpart forces among extremist whites need to be defeated as well. There could be no double standards on this divisive question of quashing race and religious hate, among democratic governments.

The question is invariably bound up with the matter of expeditiously and swiftly advancing democratic development in divided societies. To the extent to which a body politic is genuinely democratized, to the same degree would identity based animosities be effectively managed and even resolved once and for all. To the extent to which a society is deprived of democratic governance, correctly understood, to the same extent would it experience unmanageable identity-bred violence.

This has been Sri Lanka’s situation and generally it could be stated that it is to the degree to which Sri Lankan citizens are genuinely constitutionally empowered that the issue of race hate in their midst would prove manageable. Accordingly, democratic development is the pressing need.

While the dramatic blood-letting on Bondi Beach ought to have driven home to observers and commentators of world politics that the international community is yet to make any concrete progress in the direction of laying the basis for an end to identity-based extremism, the event should also impress on all concerned quarters that continued failure to address the matters at hand could prove fatal. The fact of the matter is that identity-based extremism is very much alive and well and that it could strike devastatingly at a time and place of its choosing.

It is yet premature for the commentator to agree with US political scientist Samuel P. Huntingdon that a ‘Clash of Civilizations’ is upon the world but events such as the Bondi Beach terror and the continuing abduction of scores of school girls by IS-related outfits, for instance, in Northern Africa are concrete evidence of the continuing pervasive presence of identity-based extremism in the global South.

As a matter of great interest it needs mentioning that the crumbling of the Cold War in the West in the early nineties of the last century and the explosive emergence of identity-based violence world wide around that time essentially impelled Huntingdon to propound the hypothesis that the world was seeing the emergence of a ‘Clash of Civilizations’. Basically, the latter phrase implied that the Cold War was replaced by a West versus militant religious fundamentalism division or polarity world wide. Instead of the USSR and its satellites, the West, led by the US, had to now do battle with religion and race-based militant extremism, particularly ‘Islamic fundamentalist violence’ .

Things, of course, came to a head in this regard when the 9/11 calamity centred in New York occurred. The event seemed to be startling proof that the world was indeed faced with a ‘Clash of Civilizations’ that was not easily resolvable. It was a case of ‘Islamic militant fundamentalism’ facing the great bulwark, so to speak, of ‘ Western Civilization’ epitomized by the US and leaving it almost helpless.

However, it was too early to write off the US’ capability to respond, although it did not do so by the best means. Instead, it replied with military interventions, for example, in Iraq and Afghanistan, which moves have only earned for the religious fundamentalists more and more recruits.

Yet, it is too early to speak in terms of a ‘Clash of Civilizations’. Such a phenomenon could be spoken of if only the entirety of the Islamic world took up arms against the West. Clearly, this is not so because the majority of the adherents of Islam are peaceably inclined and want to coexist harmoniously with the rest of the world.

However, it is not too late for the US to stop religious fundamentalism in its tracks. It, for instance, could implement concrete measures to end the blood-letting in the Middle East. Of the first importance is to end the suffering of the Palestinians by keeping a tight leash on the Israeli Right and by making good its boast of rebuilding the Gaza swiftly.

Besides, the US needs to make it a priority aim to foster democratic development worldwide in collaboration with the rest of the West. Military expenditure and the arms race should be considered of secondary importance and the process of distributing development assistance in the South brought to the forefront of its global development agenda, if there is one.

If the fire-breathing religious demagogue’s influence is to be blunted worldwide, then, it is development, understood to mean equitable growth, that needs to be fostered and consolidated by the democratic world. In other words, the priority ought to be the empowerment of individuals and communities. Nothing short of the latter measures would help in ushering a more peaceful world.

Continue Reading

Trending