The LANKA GUARDIAN introduced an essay by the banker Ajit Kanagasundaram with the following note: “Over 90 percent of government revenue currently goes on debt servicing, mainly to China, and the concessionary capital repayment moratorium on multi-lateral agency loans will soon expire. What happens then?” The article is entitled “Sri Lanka: Plight at the end of the Tunnel” and can be read at https://www.slguardian.org/2017/07/sri-lanka-plight-at-the-end-of-the-tunnel/
Readers should visit the web-site for the full article. Since economic data on this topic is Greek to me, I sent an immediate inquiry to a few specialists I had met at a Marga gathering [relating to the Gamani Corea Foundation] on Saturday … and have followed it up by embracing a few others with the same inquiry. The short responses from Dushni Werakoon, Godfrey Gunatilleka and Nishan de Mel, indicate that Kanagasundaram and the Lanka Guardian are peddling nonsense.
I present their reactions and clarifications in the order received
A. Note from Dushni Weerakoon of IPS, 17 July 2017
Dear Dr. Roberts, The below number [90 percent] is wrong. Debt servicing as share of govt. revenue in 201 is aprroximately 36 per cent. I am also not sure if what the authors on moratorium by multilateral agencies. We have obtained such moratoriums when disasters have struck (tsunami) but have not sought other exceptions. …. Kind regards, Dushni
B. Note from Nishan de Mel, 17 July 2017

C. Memo from Godfrey Gunatilleke, Monday 17 July 2017
Dear Michael, Total debt servicing ratio can give a misleading impression of the debt problem. The capital part of the debt is replenished. At least the major portion, as in the case of the domestic debt, is replenished with fresh borrowing. For this reason the more important indicator for managing the public debt is the cost of interest to government revenue.
We have also to keep in mind the fact that government revenue decreased drastically to 11.5 % of GDP from about 20%. If we take action to increase our revenue as we should, the debt servicing ratio will decline proportionately.
As I point out in my book** the discourse on public debt has become highly politicized in a partisan manner
Best regards, Godfrey
** See Godfrey Gunatilleke, Towards a Sri Lankan Model of Development, Colombo, Marga Institute, 2017, ISBN 978-955-582134-6. The discussion on public debt is on pages 346-350. Godfrey
D. Additional Note on above by Nishan de Mel, 17 July 2017
Dear Michael, …. Yes, I agree with Godfrey entirely, and Godfrey has explained it very well. Debt amortisation is a book entry ultimately, it affects cash flow, but not the asset/wealth position of the country. Interest payments, if you need to be precise, are 36.2% of government revenue in 2016 (provisional).
E. Note from Gerald Peiris, 17 July 2017
I am sure this is a falsehood. It is easy to check – the latest issue of the Annual Report of the Central Bank will give you the correct figures. I think it patently absurd to say that 90% of government revenue goes for debt servicing when we know that about 50% of the government revenue goes for emoluments of its workforce. So, CHECK.
F. Note from Nimal Sanderatne, 17 July 2017
It is true that almost all government revenue goes for debt servicing. And in some years the debt servicing costs have been higher than revenue. It is however incorrect that most of it is for debt repayment to China. Our debt to China is only about US$ 9 billion.
We are in a debt trap as we have to borrow to repay.
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