Ravi Karunanayake’s Foot in Mouth Disease: Parliament dissolved due the mismanagement of the economy!

In the past 6 months Ravi Karunanayake and Harsha de Silva have managed to make sure that you and the whole country pays dearly. The mismanagement of the economy is evident in the recent foreign reserves data of $6.4 billion or 3.8 months of imports, rising external debt cost of 6.125%, domestic debt increase of $216 billion (in the first 3 months of 2015), snail pace real sector activity as indicated by the low GDP 1Q rate of 6.4%. The 30 year bond robbery. A fragile and weak Sri Lankan Rupee of 140 to the US Dollar and an increased budget deficit of 9%.

Despite all the obvious indicators showing red flags the duo continue to say that the economy is in good health. What is ironic is that they openly say that they inherited a broken economy.  However, real data suggests otherwise.

For all the above, macro indicators were significantly better as at December 2014.  Foreign reserves stood at $9.0 billion. Total Domestic borrowing was $850 billion. USD 10 years bonds were at 5.85%. GDP in the first quater grew at 7.6% The 30 year bond was 9.75%. Sri Lankan Rupee exchange rate was 130 to the US Dollar. Fiscal deficit was 6.4% Therefore the data  shows the breakdown of the whole country.

It is indeed rather worrying to find that Ravi and Harsha arguing to the contrary, when in fact they and UNP are solely responsible for the plight we are faced with currently. It should be obvious that the Yahapalana is continuing to lie and run down a strong and hard earned economy that they inherited from President Rajapaksa.

As smart professionals and young adults we must not be fooled anymore. The failure in 6 months is sufficient to cripple the country for the next two years.

If the economy was in good shape as professed by Ravi and Harsha would they have dissolved parliament?

The Biggest Fabrication of the Truth by Harsha de Silva

The Hambantota port project was a long overdue long term investment. The investment in the southern port was done with the intention of providing employment and capturing of significant foreign exchange revenue from fuel bunkering and transhipment facilities. This was discussed and debated during the 2002 government of Chandrika and Ranil but it did not get the required leadership and management to commence the project.

It was President Rajapaksa who embarked on this much needed southern port project in 2008. Phase-1 was estimated at $60 million.

Exim bank China was agreeable to finance 85% of the project cost. The final financial term sheet of 15 years was given by the Chinese bank. With 3 to 5 years grace periods. Based on buyer finance. This facility was offered on fixed rate or floating rate (i.e. variable interest rate) while the currency of finance was USD.

The fixed rate borrowing is where the lender fixes their interest rate payments throughout the tenure of 15 years. The floating rate interest rate is based on USD LIBOR ( London Inter Bank Offer Rates) plus a credit spread. So during the term of the loan the credit spread remains fixed while the LIBOR changes each period, as it's a variable rate.

The decision to choose between the two interest rates options was given to the borrower i.e. the Sri Lankan Government. The forecast was that LIBOR rates would increase during the period of 15 years. This was also projected by investment banks and multi lateral agencies.

This made the decision difficult. However the comparative study indicated that a fixed rate of 6.25% was acceptable given that the LIBOR rate plus credit spread would work out at 7.45%.

Additionally the country was on a war footage since 2005. Foreign Funding costs were high as the country's Credit Risk Premium was high. Any Dollar Bond financing was going to be very costly. Furthermore Bond financing does not have a grace periods of 3 to 5 years. Additionally we must be mindful that international lenders would not have taken Sri Lanka’s 15 years credit risk during the war period. Therefore the maximum tenure available for Sri Lanka’s Dollar Bond was 10 years. This made the Chinese finance more pragmatic and beneficial from the analysis.

However after the signing of the loan agreement in 2008 the global financial crisis hit and USD LIBOR rates plummeted to an all time low. Interest rates and commodity (crude oil too) prices fell globally. Average USD LIBOR fell from 4.5% in 2005 to 1.50% in 2009 and to 0.25% by 2013. The Sri Lankan Government discussed this situation with China and was making arrangements for the loan to be re-converted to floating rate agreement.

However the government changed. This is what happened.

The current “Sirisena, Chandrika and Ranil Trio" Government also proved their incompetency and poor judgment as they borrowed $500 million for 10 years at a fixed interest rate of 6.125%. This is despite the current government inheriting a country free from war, improved external reserves and improved external credit rating (confirmation received by Fitch Rating Agency USA).

On the other hand in 2008 given all the difficulties locally and globally President Rajapaksa secured 15 years funding at today's borrowing costs incurred by the Trio and Kottamalli Economist Harsha de Silva.

I challenge Harsha to hedge oil import contracts and all other foreign currency interest rate obligations. As these are at their lowest level now.