Dr. Harsha de Silva

Deputy Minister of Foreign Affairs, Dr. Harsha de Silva last week accused Former President Mahinda Rajapaksa of “repeating ad nauseam over the last few weeks” that the present government had taken foreign loans to the tune of US$6,361 million in its fifteen-month lifespan although it hadn’t even built a culvert with that money. Contributing a Guest Column to a local daily newspaper, Dr. De Silva said that the calculation of the loans, according to Rajapaksa was the total of two currency swaps with India totaling US$ 1,500 million, two International Sovereign Bond issues totalling US$ 2,150 million and a Sri Lanka Development Bonds issue totaling US$ 2,711 million.

“What is a currency swap? It is a swap; meaning an exchange. While most of the time currencies are exchanged, sometimes they are not, but is structured as a short term loan to be paid back with interest. In the recent case of India, I understand it was the latter. These short term exchanges are, for the most part, used to either tide over currency pressure or to directly settle bilateral trade transactions. And these take place all the time around the world,” the Deputy Minister said.

He noted that a US$ 400 million swap was entered in to in April and unwound in October while another US$ 1,100 million swap was entered in to in to September 2015 and unwound in March 2016.

“This means the ‘short-term loans’ were taken and already settled. The two central banks can at any time reenter into swaps to be unwound at agreed upon dates as per the SAARC or any other specific currency swap agreement. I believe they have entered into another USD 400 million short term swap recently to be unwound soon and is discussing another USD 700 million swap. These, as described are short-term facilities that are cleared in a matter of months at the most (the USD 1,500 million referred to has already been settled) and not the kind of ‘debt’ as implied,” he said.

Moving on to the International Sovereign Bonds (ISBs), he said the proceeds were not used for the intended purposes but instead for general budgetary support.

“The unbiased reader will appreciate that it is not easy to make drastic adjustments to the current ISB programme which has been set in motion many years ago; meaning to pay back the amount without rolling over. Nevertheless, the present government is doing its very best to bring the programme to a manageable level, and utilize the proceeds for useful capital expenditure. The overall objective is to reduce the debt to equity ratio in projects by increasing foreign direct investments on public-private-partnership basis, among others,” Dr. De Silva said.

In the case of Sri Lanka Development Bonds or SLDBs, he said they had been issued in 2015 to roll over loans taken in the past for the most part and some additional funding.
“Total outstanding SLDBs stood at USD 2,984 as at end of 2014. A total of USD 2,084 million is due in 2016 and at least that amount would have to be issued to roll them over unless other funds are found. SLDBs are issued locally for those who can invest in USD denominated debt instruments and the tenor usually ranges from a few months to a few years. They are typically taken up by local banks and other eligible parties to receive tax free interest income,” the Deputy Minister emphasized.