Government has settled all debt obligations – Prime Minister | Sunday Observer

Government has settled all debt obligations – Prime Minister

15 November, 2020
Prime Minister Mahinda Rajapaksa presents the Appropriation Bill for 2020 in Parliament
Prime Minister Mahinda Rajapaksa presents the Appropriation Bill for 2020 in Parliament

Prime Minister Mahinda Rajapaksa presented the Appropriation Bill for 2020 in Parliament on Thursday. Excerpts of the speech:

I am very glad to be able to present the second reading of the Appropriation Act for 2020. Although, this is the 11th time I am presenting an Appropriation Act in Parliament, this Appropriation Act is different from those presented so far. That is because this Appropriation Act includes four Votes on Accounts and as such this is a report of our Government’s public financial management in line with those Votes on Accounts.

A Vote on Account had been approved expecting to present an Appropriation Act after the elections. With the resignation of the then Government subsequent to the Presidential election, we, with the expectation of Parliamentary elections, formed a minority Government and managed the budget in line with the approved Vote on Account.

At the Parliamentary elections held in August 2020, having obtained 59.09 percent of the votes, we were able to form a strong majority government with 149 Members of Parliament.

Since there wasn’t adequate time to present an Appropriation Bill for 2020 during the period of the approved Vote on Account, this House approved the Vote on Account presented by me as the Finance Minister in August for the four month from September 2020. As such public finance management has been executed under four Votes on Accounts.

In the recently published World Economic Outlook - 20 October 2020, by the International Monetary Fund (IMF), it is forecasted that almost all the countries are under a massive contraction due to the Coronavirus pandemic. In this backdrop, almost all the major economies in the world have recorded negative growth rates.

Limitations of market forces

It also exposes the limitations of market forces in meeting the health and social needs of countries. What is unique about our country and our Government is that we recognise free health services and social security as fundamental policy tenets. Unlike the Government of 2015-2019 which has now been ushered into the Opposition, by giving our Government a huge majority by the people of this country at the 2020 general election, has recognised the limitations of market forces within the Government’s policy framework of “Vistas of Prosperity” and conducts itself with full commitment towards fulfilling the broad role of the public sector.

In spite of the increase in the number of deaths due to the effects of the unexpected second wave of Covid-19, we have been able to maintain a relatively low death rate at around 0.3 percent and leads in the prevention and quarantine process in comparison with many other advanced countries. We should not forget that the main reason for that is the free health system and the health service that operates covering all provinces in the country.

A monumental effort has been made towards the management of the Coronavirus pandemic even within the limitations arising from the Votes on Accounts coupled with the weak budget and economy which we inherited. Nevertheless, the Government has already spent around Rs. 70,000 million for the identification of patients, quarantining activities, random testing and related welfare activities.

Hospital capacity for disease prevention, which was limited to Colombo, has now been increased to 17 hospitals in less than a year covering almost all parts of the country. The number of special care beds for Covid-19 patients has been increased to around 600. Daily PCR testing capacity for the diagnosis of the disease has been increased to an average of 7,500-10,000 tests per day with each test costing around Rs. 6,000, with the daily expenditure exceeding Rs.50 million.

The Government also spends a sizable amount for the food and welfare of those on 14-day quarantine. An allowance of Rs.5,000 is granted to low income families that are adversely affected by the Covid-19 pandemic. The Government is also bearing expenditures related to the payment of the allowances of public servants who are engaged in those services and other related expenditure.

Budget deficit

A main feature of bridging the budget deficit in the recent years is the non-settlement of dues to suppliers and beneficiaries from whom the Government had procured goods and services. Such outstanding unpaid bills amounted to Rs.243 billion, while the foreign debt financed expenditure amounted to Rs.212 billion remained unaccounted due to the approved borrowing limit being exceeded, resulted in the reported budget deficit for 2019, not reflecting the actual fiscal position.

The public debt that stood at 70 percent of GDP in 2014, had been raised to 85 percent. This is in spite of the Hambanthota Port being sold on a long term lease which was justified by the then Governor of the Central Bank to be required to support debt management. Although the annual debt service for the Harbour amounted to only around USD 90 million, the loan obtained for the construction of the port had not been settled even after receiving USD 1,200 million from the sale of the Port.

The Treasury is still servicing the loan annually to the China Exim Bank. It appears that the funds so raised from the sale of the Port had been utilised to finance other budgetary activities. From 2020, annually, foreign debt servicing amounts to USD 4,200 million. Members of the Opposition and their advisors both local and foreign had forecasted that we would become a country in default as we were caught in a debt trap.

Contrary to the forecasted dark picture, I am happy to report to this House that we have settled all debt obligations, including the foreign currency debt dues for 2020. We were able to maintain this unblemished record of ours, only because we took immediate action to reduce unwanted foreign borrowings and made substantial effort to manage imports at an acceptable level, as we had a clear understanding that the debt phobia is being propagated simply as a strategy to justify the sale of assets of the country and the neo-liberal policies of the last Government.

Past five years

Within the past five years, not a single investment has been made to improve the production capacity by investing in a power generation project, construction of tanks and reservoirs, a water supply project, a railway line, an expressway, a bridge, a urban housing project, port city or an economic zone or a fishery harbour. No village could be found which was actually empowered through the Gamperaliya, which was designed to empower villages.

Instead of facilitating exports of locally produced tea, coconut, rubber, cinnamon and pepper, the import and re-export of these produce has had an adverse impact on the plantation sector as well.

Instead of graduating into an upper middle income country, per capita gross income was stagnating at USD 4,000. The country went from recording an average annual growth of 6 percent per annum to record a steady decline of growth to 2.3 percent in 2019. It was the lowest growth rate recorded in the South Asian region. The low growth rates recorded in the past five years, being the lowest in the region cannot be justified at all.

Our accomplishments in 2020 even amid many challenges are considerable. One of the key achievements is solving the unemployment issue of over 60,000 graduates which had prevailed for years. By now, jobs have been provided to nearly 40,000 people under the program to provide jobs targeting 100,000 people from the poorest of the poorest families. Our aim is to complete the 100,000 target before the end of this year.

Tax benefits

We have reduced VAT and NBT from 17 to eight percent and increased the applicable turnover threshold for VAT to Rs.25 million per month (it was Rs. 1 million per month previously) exempting most Small and Medium scale businesses from VAT, removed income taxes on agriculture, plantation crops, livestock and farm activity and removed the PAYE tax on information technology related jobs and foreign employment. By reducing the annual interest rates on Treasury Bills and Treasury Bonds from 15 to around five percent, not only were we able to reduce the pressure of interest cost but was also able to disburse loans amounting to Rs.250 billion to those public and private entities that was struggling.

We were able to stabilise the exchange rate, which was steadily depreciating then at around the Rs.185 level and to service the foreign debt of USD 4,200 million averting the country being classified into a debt default status. We were able to ensure a minimum price for paddy at Rs.50 a kilogram while stopping the import of rice, and also provided an attractive guaranteed price to expand the production of paddy, maize, grains, potatoes and onions by managing the import taxes.

Under the 100,000 km of roads program, three projects of 10,000 km are being implemented, 10,000 bridges are being constructed, while 5,000 bridges have reached the final stage of construction. Pipe borne water connections will be provided to 429,000 houses under the “Water for all” program. 14,000 houses under “One House for One Village” program are being constructed while work on the first 20,000 houses of the 100,000 houses program under the Urban Development program has also commenced.

The policy of our Government as stated in the budget is to change the disastrous socio-economic path that the country had embarked on, during the past five years. If the country is to achieve economic independence, then it is mandatory that we change course. It is the responsibility of our Government to reduce the income-expenditure gap to four percent of GDP by 2025 which now stands at nearly 10 percent and to reduce the overall debt to GDP to 75 percent of GDP within the next four years.