Sri Lanka parliament faults finance ministry on wrong foreign debt interest costs
ECONOMYNEXT – A Sri Lankan parliament committee has accused the government’s finance ministry of seriously underestimating and providing incorrect budget estimates on the interest cost on foreign debt, in its reports to the legislature.
A parliament report in public finance said it was trying to improve the quality and decipherability of information provided to law makers by the ministry of finance (MoF).
It referred to what it called a “puzzling phenomenon” of the finance ministry providing “egregiously incorrect” budget estimates on the interest cost of foreign loans.
The estimates provided in the budget on. interest payments on foreign loans have been egregiously incorrect, over many years, it said.
The actual costs have been under-estimated by 61.2 percent in 2016 and 33.8 percent in 2017.
The report noted that parliament had previously pointed out that “such large discrepancies need a valid explanation as foreign debt and interest payment commitments are large, known in advance, the bulk of it accrued over decades, and easily calculated.”
It also noted that “the MoF explanation provided was that this is a result of unexpected level of treasury bond purchases after the budget estimates are prepared, that count as foreign debt” and that “this explanation lacks credibility”.
This was because it requires the parliament committee on public finance to accept that interest payments on foreign debt built up over decades, which is about 35 percent of GDP at present, are hugely overshadowed by unexpected changes in interest payments on very short-term foreign debt taken and paid within a single year.
The report noted that the parliament committee had asked for a written explanation last year on “the very large and systematic error in projecting foreign interest payment” to be tabled in parliament.
“Such a written explanation has not been received to-date,” the report said.
This year, to guard against such repeated errors in estimates, the parliament Committee on Public Finance asked the MOF to share the schedule it maintains on foreign debt and interest payments.
“It is only in May 2020, after the Central Bank Annual Report is published for 2019, that the COPF will be in a position to make a fresh assessment about the integrity of the information that has been provided in the current budget cycle,” the report said.
“This simple case study on the huge discrepancies in estimates provided to Parliament, against actual outcomes, reflects the very serious failure by the MOF to adhere to reasonable standards in the provision of information, and lack of due diligence in responding to the issues highlighted through COPF reports.”