Letting SOES to borrow in foreign currency: Putting cart before the horse?
Even before the dust has settled on the Eastern carnage on April 21, the present dispensation dropped a different kind of bomb by announcing that they are going to amend the laws to let Sri Lanka’s debtridden, loss- making State-owned enterprises (SOES) to borrow in foreign currency.
Moving a motion in Parliament, Finance State Minister Eran Wickramaratne earlier this month proposed to allows SOES to borrow in foreign currency from offshore sources.
It was only the other day the International Monetary Fund (IMF) estimated that Sri Lanka’s national debt had reached 90 percent of the gross domestic product (GDP) and noted the country could be trapped at these levels until 2024.
The fund further estimated Sri Lanka’s SOE obligations were at 11.8 percent of the GDP while the losses at the Ceylon Electricity Board, Ceylon Petroleum Corporation and Srilankan Airlines together accounted for 1.3 percent of the GDP.
At a time when Sri Lanka’s public debt has already reached alarming levels, no one in right senses would recommend SOES in their current dismal state to go to international capital markets to raise funds.
The fact that the proposal is coming from a no lesser person than Wickramaratne himself is quite baffling as being an illustrious banker in his previous avatar before joining politics, he very well knows about the risks of loaning to over-leveraged and loss making entities.
Every Sri Lankan is in au fait with the horrible administrative and financial status of SOES which have been for decades plagued by bribery, corruption and nepotism.
Majority of these institutions provide fertile grounds for politicians to create jobs for their kith and kin and their minions who will then begin siphoning off the public resources for their personal wealth creation at the expense of the taxpayers’ money.
We can recollect how the previous Rajapaksa regime exploited State lenders as proxy borrowers for the government when they were desperate for cash. To make things worse, they kept these borrowings off balance sheet so that they could show less tainted accounts to the world, to lure more foreign borrowing and counter the flak for over borrowing, specially from the likes of Wickramaratne, who was then in the Opposition.
But the irony is that the same people, who were up in arms against such bad economic management of the then government, are now all out to give an open cheque to all these badly managed SOES.
We can understand the desperation of the present government specially after the Easter attacks, which left the country’s booming tourism industry in tatters. Tourism raked in US $ 4.4 billion last year and the government was targeting US $ 5 billion income this year.
Sri Lanka’s economy had slowed down significantly during the last few years due to bad monetary and fiscal policies of the new regime during the first couple of years of their administration since 2015. Hence, the Easter Sunday bombings dealt a lethal blow to an already hobbling economy.
While we are not in principle against letting SOES from accessing foreign sources for funding for their capital and/or liquidity requirements, we do not believe these institutions have reached maturity and have management sanity to do what State Minister Wickramaratne proposes. Given their already bleak financial position, these SOES are more likely to default on what they borrow and the obligation would ultimately befall on the government i.e. taxpayers.
Hence, we call upon the government not to put the cart before the horse and to first work towards creating management sanity by bringing in the necessary structural reforms to the SOES before letting them borrow on their own in foreign currency from foreign sources. If not, not only the SOES but also the entire economy could go into a further perilous state.