The Hon. (Dr.) Harshana Suriyapperuma - Deputy Minister of Finance and Planning

¶ 01 Hon. Deputy Speaker, the Bill relating to the repeal of the Foreign Loans Act is very important given the situation we are in today as a country. Sri Lanka is sitting on a mountain of debt and at one point, payment of those debts was considered unsustainable and the country was declared bankrupt as well. It is interesting to note, Sir, that the very people who contributed to that disaster are now trying to preach to us on how to manage this country.

¶ 02 If I may highlight some of the key milestones in the evolution of the original Act, the Foreign Loans Act, No. 29 of 1957, it goes back to the transition from the British era, where the Governor-General was empowered to sign documents. Then, there were transitions from that to Amendment Act No. 2 of 1962, subsequently, to the Foreign Loans (Amendment) Act, No. 1 of 1963, the Foreign Loans (Amendment) Act, No. 23 of 1980 and resulting in the implementation of the latest Public Debt Management Act.

¶ 03 Sir, it is very important to discuss why, as a nation, we had to go through that journey. That is because the people who governed the country lacked discipline to make use of the regulations that were in place. Instead of implementing those regulations, they were using the loopholes to abuse the law, even getting public officials involved.

¶ 04 It is well known how the Bond scam, which relates to borrowing or raising money by the then Government through Bonds, that entire saga took place. To avoid those issues in future, inquiries were held subsequently through various Committees appointed by Parliament. Due to such acts, not only did we lack progress as a country, but also former governments, the politicians who governed the country, did not respect the rule of law in the country. When committees were appointed to inquire into those matters, governance was not considered as an essential component. At subsequent investigations, discussions and deliberations in those committees, Sir, it was revealed that some people had contacted the very people who were accused of doing this very wrong thing. That was the era we passed as a country. The price of those acts, the Sri Lankans pay today as a nation. The Opposition, who are now preaching us on how to do the right thing and why government institutions are making losses, contributed to the enormous losses at those institutions. The Hon. Member who spoke before me spoke at length about SriLankan Airlines, which is sitting on a mountain of debt. By whom was it created? It was not due to the requirements of those institution. Those mountains of debt within those institutions were created due to corruption, allowing politicians, certain officials and their connected business parties to make money.

¶ 05 As far as the SriLankan Airlines is concerned, that is why it is sitting on an unsustainable debt. The losses that the Hon. Member was mentioning occurred due to the financing costs of those borrowings, which were, to some extent, unregulated and supported by corruption. The time we went on that journey as a country was a darker past, but we are looking forward to a brighter future with the amendments brought in to these legislations, which are not mere documentations, but will be implemented through a process.

¶ 06 The repealing of the existing Act up to the implementation of the Public Debt Management Act has been a transition taking place since November, last year, 2024; since the new Act was enacted, there is a transition period of 18 months. At present, the functions are handled by the Central Bank. Once the transition period is complete, all activities will be transferred from the Central Bank to the new Public Debt Management Office. So, we need to ensure that the Public Debt Management Office is well-resourced in terms of capacity, knowledge and integrity of the individuals performing the functions and technology required to perform those functions. We know that technology is already being used for trading and for various other purposes. Currently, the Government is providing all necessary facilitation to ensure that the Public Debt Management Office - PDMO - is capable of delivering the functions entrusted to it.

¶ 07 Hon. Deputy Speaker, as a government, we borrow domestically and externally. The State also offers guarantees — State guarantees and Treasury guarantees — to enable State institutions to obtain loans. In addition, other entities — for example, SriLankan Airlines — also have methods to obtain borrowing.

¶ 08 With the repealing of the Foreign Loans Act and at the same time, introducing the Public Debt Management Office, it is expected that the various kinds of borrowings — domestic borrowings, foreign borrowings, offering guarantees and other forms of borrowing by State institutions — would be managed in a way that ensures transparency and would have systems in place, allowing creditors and lenders to have faith and trust in the system because transparency, accountability and clear records of those transactions would provide lenders confidence that the country is now on the right track. This confidence relates to the premium that lenders charge. Higher confidence, better systems and better management mean lower premiums in borrowing, which we lacked earlier as a country. Not only that, the governments these very Hon. Members, who claim that the entities are now borrowing at higher rates, were in borrowed at commercial rates, which the country could not afford. So, they are all giving wrong information with the loud voices they have, whereas the reality is that they themselves created the situation we are in now.

¶ 09 When the new Public Debt Management Office is created, for the front office section, there would be separate rules and regulations to function and for the middle office, duties are segregated to ensure that they maintain the level of secrecy required and that the information has a lot of value, Sir. If leaked out to the market, Sir, the information allows people who have access to insider information to make a lot of money. That is what happened during the Bond scam. That is why the front office, the middle office and the back office of the Public Debt Management Office are structured in a manner to give confidence in the system and assure borrowers that the present Government is doing the right thing.

¶ 10 Then, with regard to foreign borrowings, there are bilateral borrowings and multilateral borrowings.

¶ 11 Hon. Deputy Speaker, debt management is as important as debt acquisition. We saw the manner in which debt was taken endlessly in the past. They did not consider why the debt was taken, whether it was invested in suitable projects or whether those projects were productive. Instead, there was a culture of theft and plunder through those borrowings.

¶ 12 Not only obtaining debt, but also management of our existing liabilities is a critical component in this journey. So, on the one hand, there are provisions and regulations on acquiring new debt for the country and on the other, on managing the existing mountain of debt we have. In relation to that, we need to make sure that we use the best strategies as a country, the best resources in terms of personnel and that we provide the best training to our officials who are engaged in these activities. So, the Government is actively engaged in working with these institutions, particularly during this transition period. During this interim period, the borrowing function presently carried out by the Central Bank will be transferred to the newly established entity under the Ministry of Finance under the new Act, and the necessary training is being provided to those officers. So, currently, it is on a parallel run. The Public Debt Management Office works with officers of the Central Bank to carry out these tasks. We expect to successfully conclude the transition period and, from early 2026, carry forward these functions through the Public Debt Management Office.

¶ 13 There is another important element relating to this, Sir. That is the issuing of Treasury guarantees when there are borrowings by State institutions. The Hon. Member who spoke before me mentioned about the CEB, how its expected borrowing from the AIIB is going to impact on. Previous governments allowed institutions to borrow recklessly, providing State guarantees, Treasury guarantees without looking into the ability of those institution to repay the debt. That system has changed now, Sir. When a State enterprise requires a State guarantee for their borrowings, this new entity would review that. It allows the State enterprise to go through a stress test to understand whether it is able to repay the debt as expected and the project or the purpose for which the money is going to be invested in would generate cash flows, enabling them to repay the debt. Otherwise, it is equal to Government borrowing. Therefore, now a prudent, rigorous mechanism is in place with stress tests done prior to allowing these processes to go ahead. At the same time, we need to make sure that the processes we are introducing do not delay the activities of those institutions. There are some teething issues, we acknowledge as this is the transitional period. For example, the CEB is trying to get this debt facility and since this is the first time that the PDMO is issuing this type of confirmation, it has taken a longer time than expected. We believe that as we move forward, those issues would be resolved since staff members are getting familiar with the process. And, Sir, this is the transition period, as I mentioned earlier.

¶ 14 If we take the SriLankan Airlines, its recent financial statements and operating results were in dollar terms because the transactions of the entity deal mostly in foreign currency. So, a significant component of the financial results, which was referred to, relates to the translation loss of foreign currency into Sri Lankan rupees. Further, as I mentioned earlier, a significant amount relates to the financing cost as well. So, one relates to the translation cost in financing and the other relates to the financial cost on previous borrowings. The objective or the mission of the Government is to ensure that we are able to go ahead with our investments, facilitating timely approvals for these entities. The processes we have in place are well lubricated to serve the purpose they stand for. So, by the day, the institutions are familiarizing with the new culture in place, under which the loans taken are not for stealing purposes, but solely for the benefit of the institution and to invest for the future of this country. Similarly, in the new Bill we are bringing in to repeal the Foreign Loans Act, No. 29 of 1957, there are several provisions to uphold governance and controls in the processes and to ensure that transparency is available so that creditors or lenders would have confidence and accountability and the level of scrutiny that is required.

¶ 15 Sir, we know that national accounts of this nation show a deficit, unrecorded transactions to the tune of more than Rs. 22 trillion! Hon. Deputy Speaker, the Auditor-General’s observations on our national balance sheet indicate a shortfall of over Rs. 22 trillion where details are not available for certain items on one side. This clearly shows that finances in this country were not properly managed. If the borrowings had been properly managed, recorded, audited and disclosed transparently to the public, the country would not be in this situation today. There is a gap of over Rs. 22 trillion not properly recorded, and it is not clear where that money was spent. The present Government has commenced a process to investigate this. We may have to go back decades in history to trace this information, and we have already begun discussions, engaging the Auditor-General and officers of the National Audit Office with the required expertise to implement a programme. What this reveals is that those politicians who claimed to be developing the country in the past engaged in reckless borrowing.

¶ 16 As a result, we are sitting on a mountain of debt as a nation. However, the present Government has put a plan in place and appointed efficient people to the boards of the respective institutions. We are implementing that plan and monitoring its implementation, having regular reviews to ensure that we are on the right track.