brand logo
logo

'Government's debt-to-GDP ratio is inaccurate'

04 Aug 2022

  • Audit report reveals Rs. 289 bn in foreign loans not recorded
  • Proper accounting practices not followed for H'tota Port, Puttalam Coal Power Plant loans
    By Imesh Ranasinghe  The Sri Lankan Government’s financial statements have not recorded foreign debt worth Rs. 289 billion as at the end of 2021, while the debt-to-GDP (Gross Domestic Product) ratio figures presented by the Government have been inaccurate since 2018 due to understatement of debt and other accounting errors, according to a special report from the National Audit Office. According to a special report by the Audit Office on Financial Management and Public Debt Control, between 2018 and 2022, foreign loans worth Rs. 289 billion for the construction of the Puttalam Coal Power Plant and Hambantota Port even at the end of 2021 were not accounted for by the Government, as proper accounting practices in recording debt have not been followed. The report revealed that the values had been overstated in the other outstanding debt balances other than the debt of the Government (since this debt has been recorded under foreign project loans obtained by State enterprises in the public debt report by the Central Bank of Sri Lanka). Moreover, it said that in the Government’s debt servicing for the aforementioned borrowings made for the construction of the Hambantota Port, a difference of Rs.16,354 million was observed between the value of repayment of foreign debt in 2021 in the financial statements of the Government and the total values in notes to its financial statements. Further, the report said that the understatement of debt and accounting errors also have led to the debt-to-GDP ratio not being accurately depicted between 2018-2021. It said that although it has been stipulated in Section 113 of the Monetary Law Act that the Central Bank shall, as an agent of the Government, be responsible for the management of the public debt, action had not been taken to define public debt or types of loans to be included in public debt in that Act or in the Fiscal Management (Responsibility) Act No. 3 of 2003. Therefore, the Central Bank advance had been categorised as a domestic loan and given reasons therefore in the financial statements audited in 2020. However, as of 31 December 2021, the balance of that Central Bank advance, amounting to Rs. 150.1 billion, had been removed from the domestic loan categorisation and listed as a separate item.  Further, liabilities had not been defined in the Fiscal Management (Responsibility) Act, No. 3 of 2003. Therefore, since the types of loans to be used in the preparation of the debt-to-GDP ratio had not been determined definitively, the value computed cannot be verified as the ratio expected by the said Act, the report noted.  Another example highlighted was the overdraft of the Bank of Ceylon accounted for in the financial statements of the Government, which, at the end of 2018, 2019, 2020, and 2021, amounted to Rs. 188.1 billion, Rs.179.2 billion, Rs. 264.2 billion, and Rs. 494.9 billion, respectively, whereas the values had been stated as Rs. 147.7 billion, Rs.108.6 billion, Rs. 206 billion, and Rs. 430.1 billion, respectively, in the aforementioned total outstanding debt of the Government. Thus, the total outstanding debt of the Government as at the end of 2018, 2019, 2020, and 2021 had been understated by Rs. 40.4 billion, Rs. 70.6 billion, Rs. 58.2 billion, and Rs. 64.8 billion, respectively. Therefore, the National Audit Office said that the debt-to-GDP ratio of the Government recorded in 2018, 2019, 2020, and 2021 as 84.2%, 86.8%, 100.6%, and 104.6%, respectively, should have been adjusted to 88.1%, 90.7%, 103.9%, and 107.7%, respectively. “Although the Government continued to repay loans and interest payments through annual estimates and should have reported these as direct public debt, it had not done so, and it was observed that it is not realistic to identify them as liabilities in the financial statements of the relevant State enterprises without being recording as direct debt,” the special report by the Audit Office said.


More News..