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Sri Lanka window dressed fiscal data; hid borrowings: Auditor General

ECONOMYNEXT – Sri Lanka’s has systematically window dressed fiscal data hiding borrowings to understate national debt and the budget deficits over a decade in a bid to circumvent a fiscal responsibility law, Auditor General Gamini Wijesinghe said.

"Because borrowing exceeded ceiling set by law, to hide them they had been taken off the books and transferred to different places," Wijesinghe told reporters Wednesday.

"Even I cannot give you a correct number for the national debt."

Fiscal Rule

He said a Fiscal Management Responsibility Law set up in 2003 had set limits for national debt and deficits but they were circumvented over the last decade through various methods devised during the time of the then Treasury Secretary.

"The Treasury Secretary has done a number of acts to completely destroy (sampoornayen vinasher kirimeeter) financial discipline (moolya vinaya)," he said.

According to central bank provisional data, the national debt was 10,339 billion rupees by end November 2017 he said.

By 2016 the official figure was 8,869 but about 332 billion rupees had been taken off the books. These included 24 billion rupees taken for the Mattala International Airport, 33 and 109 billion taken for Hambantota Port and 116 billion rupees taken for Puttalam Coal power plant.

In the past loans for state enterprises were ‘on-lent’ when borrowed directly by the government.

In addition there were over billion rupees of borrowings by the Road Development Authority from local banks under Treasury guarantees, he said.





The RDA has no revenue to speak of to settle any loan. These were classified as contingent liabilities.

Contingent Liabilities

The Treasury is now making annual allocations to repay these liabilities he said. They continued to be classified as ‘contingent liabilities’.

A total of 536 billion rupees had been borrowed via Treasury guarantees or letters of credit.

The Department of Pensions also appeared to have borrowed over 35 billion rupees from the Bank of Ceylon and Hatton National Bank to pay ‘commuted pensions’, over several years, Wijesinghe said.

These expenses do not appear to be counted as recurrent expenditure in the budget of relevant years, he said, understanding expenses and the budget deficit.

Analysts have also pointed out that loans to RDA, unlike to agencies like the Ceylon Electricity Board which can make profits, were not contingent liabilities, but actual liabilities of the central government which could never be repaid by the road agency out of its own revenues.

The loans are still classified as ‘contingent liabilities’ even when the Treasury has started to pay them back.

Many of these practices are still continuing with officials unable to decide where to start corrections. He said there was a 487 billion rupee gap between the face value and recognized value of bonds.

There was a massive gap between total liabilities and recorded assets.

Window Dressing

But from 2013 a balancing figure labelled ‘investment on borrowings’ which was exactly the same as borrowings had been introduced to push up total assets, Wijesinghe said.

As a result a line item called Total Financial Assets had suddenly jumped from 620 billion rupees in 2013 to 8.7 billion rupees in 2016, he said.

"The balance sheet had been window dressed," he said. In 2016 Wijesinghe disclaimed the finance ministry accounts.

Under the current administration about 1.6 billion in assets had been identified, he said.

Analysts say the problem could be solved either by introducing an unallocated asset account for unidentified assets, which will be periodically debited and credited to a non-financial asset account or by admitting the existence of negative net assets.

The current administration has identified about 1.6 trillion in assets, Wijesinghe said.

Due to chronic subsidy culture, and a bloated public service coming from giving jobs to unemployed graduates and political henchmen Sri Lanka has a bloated public service and a current account deficit in the budget, which is filled with more borrowings.

Wijesinghe said the ‘grace periods’ of a number of large loans were now starting to end, and instalments will kick in over the next three years, pushing up debt service.

Per capita debt had 417,913 rupees in 2016 from 124,711 rupees in 2006, he said. (Colombo/Feb07/2018 – Updated)

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