brand logo

To understand the current crisis, one must understand politics: Dr Nalaka Godahewa

27 Mar 2022

Speaking at a conference regarding the ongoing economic crisis in the country, Sri Lanka Podujana Peramuna (SLPP) MP State Minister Dr Nalaka Godahewa explained how Sri Lanka got itself into the economic crisis, the mistakes made in the past, missed opportunities, delayed decisions and short term and long term solutions moving forward. "To understand the current crisis in the country we must firstly understand politics. Politics is a subject professionals don't like to talk about. A famous poet once said that if we are in a mess today, we first must understand politics. Sri Lanka has a foreign currency issue which is because of a debt crisis. Debt is not a bad thing, but debt becomes a bad thing when a country cannot generate enough money to pay off the debt. All developed countries in this world have some sort of debt," said Dr Godahewa. He further explained how debts are part of everyday life and compared it to how a country manages debt. "When we borrow money to either buy a house or a car, we take a long term loan which over a period of time we can pay off. We do not feel the pressure as the loan is paid in small instalments. Over that period, while the loan is paid, our finances usually grow and we start to earn more than how we started. Long term borrowing is not at all a problem. The same is with a country, long term borrowings are not an issue. Up until the 90's, Sri Lanka had debts and all were concessionary loans. We had taken loans from ADB, JAICA or World Bank, which had a long term repayment plan of 25 to 30 years with a low interest rate as well. Back in 1989 we were at the same percentage of foreign debt but back then no one called it a crisis," he stated. He then went on to explain when the problem began in Sri Lanka. "The problems began when Sri Lanka started borrowing short term loans instead of long term loans. Starting from 2007, Sri Lanka took its first short term sovereign bond of USD 500m, which we took as we were at the peak of the war. Then again we took another USD 500m in 2009 to develop the country post-war. By that time, Sri Lanka was categorised as a middle income country and we were not getting concessionary loans, and instead had to move to commercial loans, with which we started building ports and highways," he added. Dr Godahewa then explained how the assets owned by Sri Lanka were not generating revenue. "The Ports and highways that were built were not generating revenue, or rather the focus was not on how we should be generating money out of these assets. We were building much needed infrastructure, and we had to provide for the people of the country. Electricity, water and roads were much needed post war. Then in 2014, the Government changed and when the new Government came into power, the country was facing a severe amount of debt. Interestingly, the Government that came to power only spoke of the debt trap but never came up with a solution to get the country out of the debt trap they spoke much about," Dr Godahewa mentioned. Dr Godahewa then stated that the Government in power from 2009 to 2014 then added to the debts of the country through added sovereign bonds amounting to USD 5BN. "These sovereign bonds were short term debts that had to be paid within 5 to 10 years. The thing with a sovereign bond is that after the stipulated period, the loan has to be paid back in full. So, if for example USD 1000mn was borrowed and the stipulated time has passed, the total amount has to be paid in full apart from the capital that was paid over the period of time. The Government that came to power in 2015 borrowed a total of USD 12.5bn in international sovereign bonds. This amount was more than double what the previous Government had borrowed. The government stated that they had to settle the previous borrowings at that time," Dr Godahewa explained. He then revealed that only 3 of the sovereign bonds which were paid off by the Yahapalanaya from the sovereign bonds that were taken previously. "Only USD 2bn in sovereign bonds were paid off from the USD 12bn that was taken by the government in 2015. Clearly, both Governments have made the critical mistake of borrowing and not investing in money generating assets. Debt had increased in the country, yet the growth and income had not increased. The problem now was that the debt had to be repaid but the income was not there to pay these debts off. In 2020, the problems increased. Our imports and exports were not balanced and not enough. Savings of the country had to be used to pay debts. Then, Corona happened! Tourism dropped and that was another loss," He detailed. Additionally, Dr Godahewa said that the debts keep rolling in and have now amounted to a point where Sri Lanka has to now go back to the IMF. "What is crucial now is that as a nation, is Sri Lanka going to go back to the same mistakes instead of rectifying the mistakes? We call ourselves a literate country, and we must move forward and restructure our debts. First thing we must work on is our exports. Apparels, tea, coconut and rubber have been our main exports since the 1950s and we must keep developing ourselves. The IT industry needs to develop as well and put in our maximum efforts. We are sending girls abroad to work as maids, we need to get into more skilled workers as well," he explained. He then added that he was sad to say that nothing of such has happened within the last 2 years. "If we can send a trained nurse abroad, she can generate USD 7000 to 8000 monthly. How much can a maid earn? It is not enough. Our tax system needs to be adjusted just as the IMF report mentioned. I was also a person who advocated to simplify taxes back then, that was only because the previous Government had increased taxes overnight. That needed to change. At least now, we need to correct those mistakes of the past and rectify these issues. We need foreign investments as well. Countries such as India, Vietnam, Malaysia are plentiful in foreign investments. We need to see if it is corruption as well. We need to put things right. It is only in a time of crisis that we all need to pitch in and seriously discuss a solution and a way out. We need to be sensible and think of a way to generate an income out of our assets," he concluded.

Kapruka

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!


More News..