Fitch Ratings looking for ‘clarity’ on Sri Lanka debt numbers

ECONOMYNEXT – Fitch, a rating agency, was looking for clarity on Sri Lanka’s debt numbers after the country’s auditor general said debt could be up to 4 percent of gross domestic product higher than reported.

"We are still looking for clarity on this," Sagarika Chandra, Associate Director of Sovereign Ratings at Fitch, told a forum in Colombo.

Sri Lanka’s auditor general refused to sign off on accounts of the finance ministry saying debt was understated, methods used to calculate bond liabilities in 2016 were not consistent with prior years and some debt agreements seem not to have been totalled up according to test checks.

The AG said debt seemed to 83.3 percent of gross domestic product and not 79.3 percent as reported. Sri Lanka has also been changing how GDP is calculated, making comparisons with prior years difficult.

There were no reactions or explanations from the Treasury on the report itself. Some of the issues had been highlighted in the 2015 audit report as well.

Chandra said the agency had ‘no issues’ with the data presented by the Central Bank and the numbers monitored by the International Monetary Fund, and it was too early to comment on whether the Auditor General’s comment would affect Sri Lanka’s rating.

Fitch downgraded the outlook on Sri Lanka’s B+ sovereign rating several months after the Central Bank precipitated a balance of payments crisis from early 2015 by cutting rates in the middle of a budget deficit expansion and a pick-up in private credit.

In February, Fitch upgraded the outlook to stable from negative, after authorities boosted tax revenues with value-added tax hikes and monetary policy was tightened after a deal with the International Monetary Fund.

Fitch viewed the ‘revenue-based fiscal consolidation’ favourably, she said.

Domestic analysts had noted for several years that fiscal authorities had blatantly pushed debt taken by agencies like the Road Development Authority off-balance sheet through Treasury guarantees although the agency had no revenue to repay the banks.

There were also some other debt relating to state-owned-agency bailouts that were not only in national debt, but also seemed to be out of annual budget deficit numbers.





Domestic analysts who closely follow the shenanigans of government accounting practices have been amazed at how easy it is to persuade external agencies to go by data accounted for in odds ways. (Colombo/June08/2017)

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