The Hon. (Dr.) Harsha de Silva

¶ 01 Hon. Speaker, Opposition Members will respond on the Code of Criminal Procedure (Amendment) Bill. I will focus on Item 2—the Foreign Loans (Repeal) Bill.

¶ 02 Repealing the Foreign Loans Act operationalizes the Public Debt Management Act approved last year, centralizing all borrowing—Treasury Bills/Bonds and international borrowings—under the Treasury Office in the Ministry of Finance, Planning and Economic Development (ideally an independent debt office). From 01 January, Treasury issuance and auctions move there. Infrastructure and staffing issues remain to be explained by Government.

¶ 03 However, there is an oxymoron today. While enabling disciplined debt management by repealing the old Act, the Government also presented the Sri Lanka Electricity (Amendment) Bill, which appears to constrain private investment. Under the new debt framework, SOE borrowing requires stress tests and sovereign guarantee premia. Historically, guarantees under the Fiscal Management (Responsibility) Act caps were lifted—eventually up to 15 per cent of GDP—leading to excessive guaranteed SOE debt (e.g., SriLankan Airlines, RDA, UDA, Mattala Airport’s non-revenue USD ~200 million loan).

¶ 04 Ratings: Fitch and Moody’s have lifted default status, but S&P still lists Sri Lanka in default because SriLankan Airlines is in default on a USD 175 million international borrowing—now over USD 200 million with accrued interest. S&P requires resolution (restructure or repay) for sovereign removal from default. Discussions via Lazard are ongoing.

¶ 05 SriLankan Airlines: The President reportedly said the Government will ensure SLA remains state-owned, implying no private capital. Meanwhile, about 12,000 applied for cabin crew; there are already 975 staff with Rs. 9 billion annual cost. Of 45 routes, 31 make losses. As at 31 March 2025, the airline’s loss rose 143 per cent to Rs. 3.4 billion, despite fuel costs dropping Rs. 23.5 billion, while passenger revenue fell Rs. 40 billion. Debt stands at USD ~978 million plus Rs. 51 billion unpaid. Plans to lease five aircraft to reach a fleet of 25 raise concerns absent private capital and with governance overlaps.

¶ 06 Under the new debt rules, SOEs must pay a sovereign premium post stress test. Example: CEB’s attempt to borrow USD 50 million from AIIB—tiny relative to needs—reportedly requires a 4.8 per cent sovereign premium to GoSL. Adding interest, borrowing costs become 7–9 per cent or more—hard to finance infrastructure. Multilaterals will direct commercially viable entities to commercial markets; concessional finance will prioritize non-commercial sectors like health and education.

¶ 07 At the same time, today’s electricity amendment appears to shut doors to private investment in transmission and distribution—the very capital needed. The Government also promised Rs. 1.3 trillion capex this year; reportedly under Rs. 200 billion has been spent at mid-year, implying over Rs. 1 trillion must be spent in six months—unlikely given sovereign premium constraints.

¶ 08 Therefore, while the debt management reform is positive for discipline, pragmatism demands opening to private investment in infrastructure. Otherwise, capital expenditure targets (Rs. ~1.4 trillion) will be missed; the new legal framework alone cannot deliver.