Fresh questions over Sri Lanka budget deficit, national debt numbers
COLOMBO (EconomyNext) – Sri Lanka is discovering spending commitments in roads and water of as much as 800 billion rupees which were apparently not passed through a parliament approved budget allocations, Finance Minister Ravi Karunanayake said.
So far road spending of 510 billion rupees, which were apparently ‘off-budget’ have been discovered, he said.
In the dark
Karunanayake said Highways Minister Kabir Hashim had a team trying to uncover the exact nature of the spending commitment and unpaid dues.
"I have just been informed that water is not second to that," he told foreign correspondents in Colombo on June 11.
Off budget spending in water sector has been estimated about 325 billion rupees, he said.
Sri Lanka’s water infrastructure is owned and operated by the National Water Supply and Drainage Board and independent agency which charges for all water sales.
But large roads are built by the Road Development Authority, a separate agency which however has no revenue, but it has been borrowing heavily from commercial and state banks through Treasury guarantees.
Karunanayake said borrowings by RDA from banks such as the National Savings Bank appeared to be off-budget.
It is not yet clear, whether the budget allocations made each year to the RDA consists of its actual spending or it has loan repayments for spending undertaken outside the budget.
According to Finance Ministry data a total of 556 billion rupees of Treasury guarantees have been issued to various state agencies by end 2014, with 91 billion in new guarantees in 2014 alone.
Out of that 440 billion rupees in outstanding unpaid disbursements remained. Some of the borrowings were by state agencies with revenue such as Ceylon Petroleum Corporation.
If spending is committed outside the budget, the total capital expenditure and borrowings have been under-reported for several years, indicating the reported overall budget deficit has been under-stated for several years.
Deputy Economic Planning Minister Harsha de Silva said earlier this month that a full-audit is needed to fund the fiscal position and the establishment of a National Audit Commission would help clear ambiguities in the future.
"In recent years some spending, some debt has been taken out of the budget," de Silva told reporters on June 01.
"We will have to analyse and decide how to account for these from the beginning. What is the time period in which these costs were incurred? By establishing the National Audit Commission through the 19th amendment, we hope that state accounts would be better."
The Central Bank’s 2014 annual report also made some startling revelations.
In 2014, a deficit of 691 billion rupees (widened to 6.0 percent of GDP up from a planned 5.2 percent) was plugged with 286 billion rupees of foreign financing and 378 billion rupees of domestic financing including 35.6 billion rupees of printed money.
But the Central Bank’s annual report said there was a further financing of 68.7 billion rupees or 0.7 percent in 2014 to bail out state owned enterprises which was not included in domestic financing.
No explanation was given for why it was not included.
Sri Lanka has also excluded 95.9 billion rupees (around one percent of GDP) debt taken in prior years to bailout out state enterprises from the reported domestic central government debt of 7,399 billion rupees.
This is made up of 4.39 billion rupees of Treasury bonds issued to CWE, a state trading firm, in 2003 (which was originally expected to be a contingent liability backed by land sales), 78.4 billion rupees issued to Ceylon Petroleum Corporation in 2013 and 13.12 billion rupees given to capitalize SriLankan Airlines in 2013.
A bailout by a rupee bond of past losses in a state enterprise is a non-cash cost to the budget of the current year, but it involves off-budget cash costs actually incurred in a prior year. The revelations seems to show that cost were not accounted for in any year.
Bailouts of state-run Bank of Ceylon and People’s Bank in the 1990s however were reported as debt. No explanation was given why they were excluded. It is also not known whether interest costs on those bonds is charged to the budget current spending.
In another revelation, the Central Bank annual report said interest in ongoing projects were capitalized from 2013 under a circular issued in November 29, 2013.
In 2013, 18.9 billion rupees had been capitalized and in 2014, 7.2 billion rupees.
Capitalization of interest understates current spending and overstates capital spending, and will show a lower current account deficit.