Sri Lanka public debt hits 90-pct of GDP after currency collapse, CPC debacle

ECONOMYNEXT – Sri Lanka’s public debt has hit 90 percent of gross domestic product by end 2018, International Monetary Fund data showed, amid a collapsing ‘flexible exchange rate’, and a forex debacle at a petroleum utility.

When state enterprises were counted public debt hit 99.4 percent of GDP. Some state enterprises however had their own revenues to service debt.

If some SOE debt becomes direct liabilities of the central government, public debt could hit 101 percent of GDP In 2019, the IMF said in a debt analysis.

IMF calculations showed that public debt which includes government guaranteed debt of 5.2 percent grew from 82.7 percent in 2017 to 90 percent in 2018, despite a tight budget and tax increases as the rupee collapsed amid runaway liquidity injections.

Foreign debt grew from 35.2 percent of GDP in 2017 to 41.2 percent of GDP in 2018 as the currency collapse.

Analysts had pointed out that all gains made by tax increases have been wiped out by the effect of currency depreciation of the highly unstable ‘flexible exchange rate’.

Domestic debt was maintained at 42 percent of GDP from 42.2 percent a year earlier.

Publicly guaranteed debt however grew to 5.2 percent of GDP in 2018 from 4.4 percent a year earlier, with the guaranteed debt of state-run Ceylon Petroleum Corporation expanding to 2.3 percent of GDP from 1.5 percent.

The CPC mysteriously borrowed heavily in dollars, despite a price formula to market price oil, and ran record foreign exchange losses of 80 billion rupees.

It is not clear who sabotaged the benefits of a fuel price formula with dollar borrowings or why, but analysts have questioned how the agency which had very little forex revenues was allowed to borrow billions of dollars and run currency losses.

You may also read:

Nick Leeson-style losses at Sri Lanka’s CPC raise big questions: Bellwether

Sri Lanka has high currency risk, debt could jump further from depreciation: IMF

Sri Lanka’s path to debt and destruction paved by currency collapse, REER targeting

Central bank borrowing from the IMF also grew from 0.9 percent of GDP to 1.6 percent of GDP, partly due to currency depreciation.

Outside of the central government (83.3 percent), publicly guaranteed debt (5.2 percent) and IMF loans (1.6 percent) non-financial state enterprises owed another 14.6 percent of debt, some of which overlapped with guaranteed debt.

Total state debt with major state enterprises were had already hit 99.4 percent of GDP in 2018, the IMF report said.

Analysts have noted that some of the debt is actually settled through the budget.

Sri Lanka had been hiding some of the debt for about a decade as ‘contingency liabilities’ in state enterprises in a bid to understate both the deficit and total liabilities.

These include some borrowings by the Road Development Authority and Ceylon Electricity Board. (Colombo/Nov07/2019)