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Thursday, July 25, 2024

Debt trap: More loans to repay existing loans

Acting minister says it is within limits but officials say financial situation dismal
Cash flow problems have forced the government to raise a further loan of US$ 600 million this year through Development Bonds. This money will go to repay previous loans as well as interest on loans for the current year.

The Cabinet on February 8 approved a proposal by the Acting Finance Minister Gitanjana Gunawardena, for this purpose. The minister in charge of the subject, President Mahinda Rajapaksa, was away on an official visit to Pakistan.

Mr. Gunawardena told ministers that the $ 600 million dollars would be disbursed

for payments for Development Bonds that would mature in March and June this year. The amount is US $ 317 million

for payment of Overseas Banking Unit (OBU) loans, which mature in August and November this year. The amount is US $ 150 million.
for payment of interest for 2012 Development Bond Loans (US$ 85.3 million) and other financial deficits that may arise when loan re-payments are made. The amount is US $ 133 million.

The raising of US $600 million, for which authority has now been given to the Central Bank, official sources pointed out, reflected the dismal financial situation. “We have to resort to a recurring cycle where every now and then, loans have to be raised to pay back previous ones or just to pay interest,” an official said speaking on grounds of anonymity.

However, acting Minister Gunawardena asserted to his ministerial colleagues that the latest loan of US$ 600 million through Development Bonds was within the ‘approved limit’. He said that according to the Appropriation Act No 52, the maximum limit for obtaining government loans, both domestic and foreign, was Rs. 1,139 billion.

From this gross credit, whilst Rs 588 billion is for repayment of loans, a further Rs. 551 billion was required to meet the budget gap for 2012 for new loans, he pointed out.


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