Financing for Development Follow-up 2023
17 – 20 April 2023

ESCAP HIGH LEVEL SIDE EVENT: “Rethinking public debt policies for the SDGs: Regional perspectives”

Statement by Hon. Shehan Semasinghe, State Minister of Finance
18 April (1.30 – 2.30 pm), Trusteeship Council Chamber

Let me thank all the five UN Regional Commissions for  organizing this event and giving us the opportunity to exchange views on a topic which is at the heart of the challenge developing countries face in realizing Agenda 2030. It is public debt and its impact on achieving the SDGs.

My country, Sri Lanka, a developing country, had provided a model to the world in the achievement of high levels of human development despite the constraints of a typical developing economy. At its core has been a free education and a free healthcare system for all citizens enabling the achievement of a number of SDG targets such as a maternal mortality of 12 per 1000 live births, life expectancy of 72 years, and a literacy rate of over 90%, to name a few.

However, in recent times, Sri Lanka was also confronted with the poly-crises; a combination of related global risk with compounding effects with the overall impact exceeding the effect of each part. This phenomenon has burdened many developing economies, causing it to struggle with unsustainable levels of public debt, and in Sri Lanka’s case, experience a state of financial hemorrhage. As a result of the impact of this crisis, most of our foreign currency financed public investment projects have faced a state of frustration. These include projects to provide portable drinking water as contemplated in SDG 6, projects in rural-urban connectivity to facilitate the rural entrepreneurs in particular farmers to be better connected to markets, as in SDG 9, projects in facilitating improved electricity distribution linked to again both SDG 9 and SDG 7 to name a few. It therefore inevitable that the country’s journey to achieving SDGs must suffer a significant setback.

We are also aware that until after the debt restructuring process is concluded that funds previously allocated to these projects by our creditors will not be available, for disbursement. Time is therefore of the essence; 12 months have elapsed since. It must be appreciated it would entail a few more months of negotiation that the debt restructuring program is concluded and the foreign currency financing from the original creditors will begin to flow.

You will also appreciate that their is inadequate fiscal space to provide the required bridging finance to facilitate these projects to continue without any interruption or impediment, until an effective resolution to the debt restructuring is reached. Predictably in the interim, contracting parties have terminated their works and have proceeded to resort to formal proceedings to pursue their causes of action .

We cannot ignore and also face a necessary concomitant of being placed in a situation of financial  inadequacy  when after more than 12 or more months of stoppage of work, the project cost have increased due to cost escalations of raw materials and other connected inputs including the cost of electricity.

The recently launched “Economic and Social Survey of Asia and the Pacific 2023” by the UNESCAP, clearly notes that high debt levels are necessarily detrimental to economic growth and has been a challenge in recent years. On the other hand, development deficits and climate risks, if left unaddressed, will have serious implications for growth and the sustainability of public finance.

It would therefore appear that there is a rationale for the reconsideration of the assessment of a sovereign’s ability to repay and service loans vis-a-vis its differentiated competencies. Is it time to look beyond GDP? It must be stated that multilaterals have a key role to play in this context if we are to build back better leaving no one behind.

It is interesting that this essence of our point is discussed in the “Economic and Social Survey of Asia and the Pacific 2023” by the UNESCAP, where I quote “chronic fiscal austerity, especially in countries where sizable sustainable development gaps remain, would inevitably jeopardize their ability to finance much-needed investments in poverty reduction, human development and environmental actions.” unquote.

We are confident that the growing green and blue financing market could be an answer to the dilemma faced by sovereigns that are faced with investment gaps due to fiscal constraints and external sector weaknesses. However, currently the green and blue financing apart from providing targeted funds for Green and Blue compliant projects seems to be following the same processes and agreements which includes the collective action clauses similar to a plain vanilla bond which has no intrinsic options or structured elements that offers comfort space for parties in debt distress. We appreciate that financial facilities require some form of collateral. But it is also possible to provide the same sense of security through Multilaterals, through the provision of sufficient de-risking support. By striving to ensure that security is given through different nations as partners structured on their integrity, accountability as an arrangement between groups of three or more states. It is only pragmatic to assume that this demands a change in the architecture of not only the multilaterals but also the Rating agencies and other support institutions as well.

Sri Lanka is experiencing the full brunt of the impact of financial distress, fiscal consolidation and low negative growth. Our people have been subject to financial stress by the Easter bombing Crisis followed by the covid pandemic and then by the conflict in Ukraine and the effects of climate change and continue to experience hardships until recently when the present government adopted compelling fiscal and other measures of  good governance to offer its people a respite from the difficult times they faced in the last three years.

Yet it is resilient because it has an asset base both natural and otherwise, that supports it to sustain itself better. It has an informal economy that is well connected and resilient. We are confident that the resilience of our people will ultimately enable us to overcome the current challenge. The Government is committed to taking the necessary domestic policy decisions on matters such as restructuring of SOEs, measures to eliminate corruption, to introduce digitalization of government procedures thus enabling the public to better access to government services and reinvigorate institutions to boost investment and foreign trade.

It is therefore my plea to you excellencies, distinguished representatives, ladies and gentleman that  it is time we changed our perspective on public debt and its policies, so as to enable countries to overcome current challenges, foster economies that actually support the creation of wealth and sustainable development in a spirit of true multilateralism to form a collaboration with the objective of providing developing nations such as Sri Lanka to address the challenges of the peoples of the world on the basis of inclusion, solidarity and consultation.

Thank you.