ECONOMYNEXT – Sri Lanka’s budget deficit for 2015 is supposed to be Rs829.5 billion or 7.4 percent of gross domestic product. But there is a great deal of confusion around it.
The central bank in its annual report said the budget deficit excludes restructuring bonds of Rs13.0 billion and Rs23.9 billion issued to National Water Supply and Drainage Board and Ceylon Petroleum Corporation in 2015.
Meanwhile, in December 2015, there was confusion about Rs50 billion of bonds apparently ‘privately placed’ by the debt office. When asked by reporters, officials had replied that it was restructuring bonds.
Of course the Rs50 billion and Rs36.9 billion do not add up, unless there is some discount involved because they were lon-term bonds.
If the Rs36.9 billion was added to the budget deficit, the gap expands to Rs866.4 billion. Then the budget deficit for 2015 is 7.7 percent of GDP not 7.4 percent.
This is not all.
Sri Lanka’s total domestic debt is supposed to be Rs8,503 billion by end-2015. According to the central bank, it apparently excludes government bonds of Rs4.397 billion issued to CWE in November 2003, Rs78.447 billion issued to settle dues to the Ceylon Petroleum Corporation in January 2012 and Rs13,125 billion issued to capitalise SriLankan Airlines in March 2013.
Where is it?
If there are not in the national debt where is this debt? Who is supposed to pay them off, other than the taxpayer through the central bank government?
This practice had been going on for several years. It seems to have started in 2001, when a bailout bond was given to the now defund Co-operative Wholesale Establishment (CWE). This was however supposed to have been paid back by the same agency with some asset sales. It could perhaps be argued that it was contingent liability.
How does CPC get into debt? By giving off-budget subsidies. The expenses come home to roost several years later (with interest sometimes) when a bailout is required.
But then according to this year’s budget, they appear to off-budget too.
The central bank has not given any explanation to this curious fact, but at least it has been disclosed.
Yet another curious footnote is given to the budget data. Apparently the reported tax revenue includes the amount of tax exemptions granted for specified projects and the amount of tax concessions granted on the import of vehicles by public servants.
One can argue that it may be better to include the numbers, otherwise Sri Lanka’s tax revenues will be understated. But there is no such footnote to indicate that the same treatment was given to expenses. What does this mean? Where is this expense categorized? Is it wages or transfers to government workers? Or does the fact that there is no footnote mean it is not charged as an expense at all? In that case what happens to the deficit?
Curiouser and Curiouser
Here is another curious number.
In the IMF Article IV consultations report, the 2015 budget deficit is not 7.4 percent of GDP or 7.7 percent. It is 6.9 percent. This report was released in June and it cannot be a forecast because the final numbers were unavailable. There is also a gap between revenue and expenditure.
It is on top of this that questions are raised about GDP. If the GDPnumber is wrong, all budget data is wrong.
Adding to this, the budget that the finance ministry is following is not what was presented to the parliament at all. That budget contained a lot of spurious revenue based on imputed revenues and expenditure. At least that nonsense seems to be have dropped.
This column is based on ‘The Price Signal by Bellwether‘ published in the July 2016 issue of the Echelon Magazine. To read Bellwether columns as soon as they are published, subscribe to Echelon Magazine at this link. The i-tunes app can be downloaded from here.