The Sri Lankan government on Thursday trumpeted the over-subscription of its controversial debut international sovereign bond for $ 500 million as a firm vote of confidence in the resilience of the island's war-torn economy.
But critics said that the euphoria was completely unwarranted, as the bond was too expensive and was also harmful to the economy.
"The bond carries 8.5% interest over a five year period which is the costliest loan that the Sri Lankan state has ever taken in its history. The subscribers have got a very good deal even as it shows how desperate the government has been to get money," Dr Harsha de Silva of the Colombo-based think tank LIRNE ASIA told Hindustan Times.
The President's Office had said in a press release that the bond, meant for infrastructural development, was over-subscribed three times when the bids closed on Wednesday.
Forty per cent of the investors were from the US. And Europe, Middle East and Asia accounted for 30% each. The release claimed that international investors were clearly impressed with Sri Lanka's 7.4% growth in 2006, despite the fuel price shock, adverse weather conditions and the continuing war against terrorism.
But Dr de Silva and other critics, including the opposition United National Party (UNP), had condemned the decision to issue the bond on the grounds that it was foolish to go in for such a costly loan for long-gestation period infrastructural projects when it made greater sense to go in for much cheaper international loans, and when such loans were available.
The UNP had even threatened that it would cancel the issue if it came to power.
Dr de Silva and other economists wondered if the expensive money, got in such a hurry, was meant to tide over the cash crunch the government was facing, to meet the budget deficit, or finance the ever escalating war in the North and East. The defense expenditure is to go up from SLRs 139 billion ($ 1.27 bn) in 2007 to SLRs.166 billion ($ 1.46 bn) in 2008, and the inflation rate is currently at 17.5%.
Dr de Silva charged that the government had fibbed the list of projects in its presentation to the investors to make it impressive.
"The same projects had been entered under different names and separate allocations were sought to inflate the estimates. There was even a project to build a road to Jaffna when everybody knows that a road cannot be built when a war is on!" he said.