“SL emerging from economic crisis in commendable and disciplined manner”
Sri Lanka is coming out of an economic crisis in a very commendable and disciplined manner said Prof. Lee C. Buchheit, who is specialized in Sovereign Debt Management and has an excellent 43 year career in private legal practice at the 74th Anniversary Oration of Central Bank at the Atrium of CBSL Head Office, Colombo 1 yesterday.
The Oration reflects on “Sovereign Debt: The Myth of the Golden Age.” He however said that the lenders would not seek for the entire debt to be totally written off but would prefer tier loans to be re structured. A famed tax and economic expert who has helped many countries to turn around said that any country will have sovereign debt after facing an economic crisis, a COVID pandemic situation or during a war. He quipped that some sovereign debt will remain forever like ‘true Love’.
He also opined that it’s fair to take international credit for creditable infrastructure development but said that borrowing internationally to service a large public sector or providing handouts regularly are not justifiable. He also said some governments try to service debt by increasing taxes but that did not work. The best example for this is in Kenya when huge protests were witnessed when the government tried to increase tax to repay debt.
“Let us take as an example the world’s largest sovereign debtor, the United States of America. Total U.S. Government debt now stands at about $35 trillion. What is astonishing about that figure is not just its eye-watering size, but the speed with which the debt has accumulated.”
“Just 25 years ago, the national debt was $6 trillion. While GDP grew by a factor of 2.8 over this period, debt grew by a factor of nearly 6. As a consequence, the total debt-to-GDP ratio of the United States went from about 60% to 125% in a quarter century.”
The nonpartisan Congressional Budget Office forecasts that public debt will continue to grow and will surpass 170% of GDP in the next 30 years. The administration that will take office in the US next January will not just have to borrow to cover this debt but will also have to borrow to refinance the country’s outstanding $35 trillion stock of debt.
“The effect of this will be felt to other countries as well.”
He said that similar to accumulating sovereign debt and passing it on to the next generation pollution of the environment too is a major sin. “However the next generation that comes to protest the planet cannot protest or protect it since that generation is not born yet!”
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