View from Colombo: Government debts still exceed GDP

The ever increasing government debt continues to remain a heavy burden though the business friendly United Front Government has been taking numerous measures to uplift the island's economy.

The mid year report announced by the government, months before last month's annual budget, pointed out that the economy which was in very bad shape during the past few years started taking off on a firm footing with the achievement of 5.5 per cent economic growth.

According to this report industrial production rose by 4.6 per cent, tourism by 28 per cent, exports and imports by 13 per cent, private remittances by 11 per cent, foreign reserves sufficient for 5.1 months of imports, inflation contained to a single digit level, government expenditure contained and income recorded an increase.

The total expenditure and net lending of the government amounted to Rs147 billion and the primary deficit amounted to Rs8.2 billion which is a substantial improvement compared to Rs9.6 billion recorded during the same period last year.

Yet the government debts continue to exceed the GDP during the past two years though this aspect was not highlighted much even in the local media which often projects foreign funding to the confidence in the government's commitment to restore peace and develop the economy.

Thus the large majority of the public remain ignorant of the impact of government debt on the economy, and in their own lives, though it has exceeded the Gross Domestic Product during the past two years too.

First time

For the first time in the island's fiscal history the government debt exceeded 100 per cent of GDP when the figure reached 103.2 per cent in 2001 while in 2002 it increased further and stood at 105.3 per cent though the figure remained between 90 per cent and 100 per cent of GDP between 1995 and 2000.

In the year 2000 it was 96.9 per cent of the GDP. This is an alarming situation for a country with so much natural resources and a population with very high literacy rate and skilled workforce.

Many attribute this unfortunate development to the unsound fiscal policies of successive governments since the country's independence in 1948, with politicians in general thinking from election to election and running excessive budget deficits financed by large scale borrowing.

Infrastructure

As a result even infrastructure development too was neglected forcing investments on this area now in a planned manner as modern infrastructure is extremely essential to attract foreign investments.

According to a Kanes report on "unsound fiscal policies" government debt became worse since 1994 during the seven year period of the previous government when it almost trebled from Rs263 per cent as it increased from Rs552 billion in 1994 to Rs1,453 billion in 2001 when the UNF government was elected.

During this seven year period public debt per person more than doubled from Rs30,848 to Rs77,552 and even the overall budget deficits amounted to Rs980 billion with the government borrowing Rs761 billion locally and Rs212 billion abroad to tide over the situation.

The increasing government debt inevitably resulted in increased debt services and interest payments which, accounting for 36.8 per cent of total government expenditure in 2001, has increasingly become burden on government finance.

In terms of government revenue they were equal to more than half the total government revenue - 53.7 per cent in 1995 - and nearly three fourths, 73.3 per cent, in 2001.

The writer is a Sri Lanka-based journalist