<b>The Government has no money, Declares Sri Lankan Prime Minister</b>

T.Sabaratnam

Colombo, July 5 (News Analysis) War and economic mismanagement had caused ‘the collapse of the economy,’ leading to Sri Lanka borrowing to pay
Debt servicing and interest, salaries of state employees and its ministers.

In a candid confession Prime Minister Ranil Wickremesinghe told the nation: “The Government has no money. The people have no money.”

He confessed that the government is now run on the money private sector employees contribute to a statutory body named Employees Provident Fund (EPF) which they draw when they retire. He admitted that the government had borrowed 98 percent of the EPF funds and EPF authorities say they are lending each moth their collection.

Wickremesinghe said: “Actually the Government is run today thanks to the money saved by the workers to be drawn when they retire.”

The government had borrowed from every source, local and foreign. Locally it had borrowed from the people through Treasury Bonds and from the banks. Short-term foreign loans were borrowed at high interest.

He gave a detailed account of the debt situation and summed up succinctly: The National Debt has exceeded Gross Domestic Product. Today, the Government’s debt is 103.6% of the Gross Domestic Product..

He said the quantum of Sri Lanka’s domestic debt rose 18.5 % while the economy grew at 5%.

Sri Lanka, for the past few years, spent more than its income. It had borrowed more and more as war escalated and security expenses soared

Wickremesinghe identified increased spending to fight the war and to meet the day to day expenses of the state as the main causes for the unbearable debt burden.

He said the cost of fighting the LTTE had escalated year after year and had shot up in 2000 when Elephant Pass fell and the government forces were almost encircled. .

Sri Lanka has been spending about Rs. 60 bn a year on the war and it had kept on rising, as the security forces demanded more and more sophisticated weapons.

Following the fall of Elephant Pass previous People’s Alliance Government bought latest weapons from Israel, Pakistan and China on short-term credit.

Wickremesinghe said the government had 13.6 billion rupees ($ 141 million) in
Outstanding loans for military purchases.

``Even if peace dawns tomorrow and no shot is fired thereafter, we will be paying
for our military purchases until 2008,'' he said..

The previous government had also been meeting its day to day expenses through borrowing; the Prime Minister said and added the Government revenue too had fallen by 21% last year.

The burden of war and day to day overspending had cast a heavy burden on the government. In June alone it paid back Rs. 230 billion on loan installments and interest payments. In this month (July) it has to pay back Rs. 500 billion, which said was equal to the sum spent of Sri Lanka’s largest showpiece Mahaweli irrigation and hydropower scheme.

He said Sri Lanka has to do what any family with high debt would do: tighten the belt, sell off the property that make losses and to earn more income. He proposed to adopt all the three measures..

Government spending would be curtailed and budget gap trimmed from 10.8% of the GDP to 8.5% by the end of this year and to 5% by 2005.
The government expects to sell off loss making institutions and raise about 21 billion rupees and use it for debt servicing. Finance minister K. N. Choksy would on Sunday spell out the details about the privatization of state-run organizations..

The Prime Minister said the government hopes to achieve 3.7 percent growth in national
Income this year, which contracted to negative 1.4 percent lat year -- the first recession since the country gained independence from Britain in 1948. He did not elaborate his strategy.

The economy grew by a marginal 0.1 percent in the first quarter of 2002, according to provisional figures issued by the central bank.

The government would soon launch a new economic development drive named Operation Economic Development, aimed at increasing levels of national productivity and efficiency.

The government is planning new laws, to be passed in August, aimed at reducing government expenditure and removing legal and administrative impediments to national productivity levels, the Prime Minister said.

“This is the most difficult year. The next year will be better due to crash programmes to resurrect the economy," Wickremesinghe told the public after appealing to them to be patient.

Are the people who pay Rs. 40 for a kilo of rice, Rs. 10 than what they paid last year, prepared to wait?