Yahapalana 'hyper-debt regime' to take on even more mega-debt

By C. A. Chanadraprema-February 28, 2018

In a recent article titled "Yahapalana government as a hyper-debt regime", Professor Milton Rajaratne of the University of Peradeniya has pointed out that even though the yahapalana government accuses the Rajapaksa government of having imposed an immense debt burden on the country, the present government too has borrowed ‘surprising amounts’ of money. Rajaratne points out that by the time Rajapaksa rule ended on 9 January 2015, the total government debt stood at Rs. 7.3 trillion and the debt burden of the country, as a percentage of the GDP, stood at 71.3%. He states that despite the rhetoric of cutting down on debt, under the new government, the debt burden had rapidly increased from 71.3% to 79.3% within two years and based on the statistics reported by the Central Bank for eight months up to August 2017, this figure would have reached 90% by the end of 2017. This would indicate a growth of almost 50% in the total debt burden in just three years.

Rajaratne has also stated that under the yahapalana government, economic growth has been much slower than the growth in borrowing and that government debt has outgrown the per capita income at a rate of more than 200% and that an increase in debt with a decrease in economic growth eventually leads to a debt trap. He has also pointed out that foreign debt has grown faster than domestic debt between 2014 and 2017. While domestic debt has increased by 40%, foreign debt has grown by 60% - an alarming development. The increase in the foreign debt component has not only intensified the debt burden but has heavily increased external dependency as well. Rajaratne has argued that his findings nullify the claim of the coalition government that Rajapaksa rule has overloaded the country with debt and that this claim is only political propaganda. Statistics prove that if the Rajapaksa government was a debt regime, the coalition government is a hyper-debt regime.

Minister to have unbridled power over finance

It is in this context, that the yahapalana government has introduced in Parliament the Active Liability Management Bill with the stated objective of managing public debt and ensuring that the financing needs and payment obligations of the Government are met at the lowest possible cost over the medium to long term. This Bill aims to authorize the government to raise a sum equal to 10% of the total outstanding public debt – which works out to well over Rs. One trillion. This money is to be used for the purposes of refinancing public debt. The annual borrowing limit set by Parliament through the Appropriation Act will not apply to the money raised under this proposed law.

Under this proposed legislation, the Minister in charge of the subject will be authorized to make the decision as to which debt will be refinanced with this money and the procedures applicable to the refinancing of that debt. Every regulation made by the Minister shall, within three months after its publication in the Gazette, be brought before Parliament for approval. Any such regulation which is not so approved shall be deemed to be rescinded as from the date of its disapproval, However, anything done by the Minister before the regulation was rejected by Parliament, will still be valid and legally binding on the government. Furthermore, this proposed legislation seeks to provide immunity from civil or criminal liability to those handling this money so long as they can prove that they acted in good faith and exercised due diligence and reasonable care.

Joint Opposition parliamentarian Bandula Gunawardene has petitioned the Supreme Court requesting a ruling that this Bill has to be passed with a two thirds majority in Parliament and also a referendum because it is in conflict with the entrenched Articles of the Constitution relating to the people’s sovereignty and the manner in which that sovereignty is exercised through the legislature. The petition states that the proposed law will abrogate the powers of the parliament to have full control over public finance as provided in Article 148 of the Constitution and make inoperative the powers of the Central Bank and the Monetary Board to manage public debt in terms of section 113 of the Monetary Law and will instead empower the Minister with the authority to regulate and control matters in relation to public debt.

The Petition states that the overall effect of the proposed law would be to create a system that has no meaningful guidelines but functions on the arbitrary decisions of the Minister and the Cabinet, thus paving the way for the mismanagement of public finances and possible fraud and corruption. In this regard, the petition points out that the immunity given by clause 9 of the proposed Bill to public servants, members of the Monetary Board and other persons, including private persons, from civil and criminal liability will further endanger the economy of the country. By extending this immunity to ‘agents’ of the Central Bank, who may also include non-public servants, the executive is vested with powers to arbitrarily exempt such non-state parties from civil or criminal liability.

The petition further points out the danger in removing the control and regulation of public funds and debt, which are parts of the consolidated fund, from the management and control of both the Central Bank and the Parliament, especially by empowering the minister to deposit such money in ring-fenced accounts at Commercial Banks. The petition points out that this will enable the Minister and the Cabinet to discriminate between licensed commercial Banks by empowering them to decide arbitrarily in which commercial banks to deposit such funds without any guidelines.

That the yahapalana government would present such a Bill in Parliament in the wake of the Central Bank bond scam which has shaken the entire country, shows how thick skinned this government is. The proposed Active Liability Management Bill seeks to vest unrestricted power to borrow and dispose of over Rs. one trillion on the very individuals who were called on to give evidence before the Bond Commission not so long ago.