By Thilina Panduwawala
A Central Bank dataset that carries an ambiguous category of foreign debt reported under state-owned enterprises (SOEs). World Bank International Debt Statistics (IDS) data that shows a higher public debt liability to Chinese creditors than the Ministry of Finance annual reports. The curious absence of loans taken to build the Hambantota Port on the Port Authority’s balance sheet. These were some of the puzzle pieces in front of Umesh and me when we were writing our paper on the ‘Evolution of Chinese lending to Sri Lanka’ back in 2022. Left unsolved, this puzzle created space for substantial misinformation, misreporting and misrepresentation about Sri Lanka’s overall public debt stock and exposure to Chinese lending. It led to allegations of ‘hidden Chinese debt’ that reinforced the ‘debt trap’ narrative, alongside the narrative of how billions were stolen through such debt.
We did eventually put the pieces together, allowing us to provide clarity on Sri Lanka’s debt exposure to China at the point of sovereign default, helping further disprove the ‘debt trap’ narrative. But we were the odd ones out; a former journalist and a former medical student, both turned economists with an avid interest in Sri Lanka’s public finances. We had made it our (unpaid) passion to track down varied data and documents to find and then put these puzzle pieces together. But for many others, including those who need to report and analyse Sri Lanka’s debt, there is rarely time to solve a complex puzzle. This contributed to misinformation, misreporting and misrepresentation.
It should not be up to two odd citizens doing unpaid passion work to piece together clarity on their country’s public debt amidst a spiraling economic crisis and black outs in 2022. The public debt ought to be reported in a way that provides clarity to any interested party without too much effort. In fact, when we published the findings of the 2022 paper, many Sri Lankans were surprised that we had access to such detailed data and information. Some assumed we had some connections in public institutions such as the Ministry of Finance and CBSL to be aware of the existence of the information and get access. The reality was that we had no such access, just months and years of trial and error in Right to Information (RTI) requests and reading through varied public reports – Parliament Hansards, Audit Reports, COPF reports, Annual Reports, etc. Here I explore the puzzle Umesh and I had to solve and how the transition to the new Public Debt Management Office (PDMO) ought to report public debt data in a way to avoid creating puzzles.
A ‘Missing’ loans puzzle
Following the 99-year lease of the Hambantota Port to the joint-venture with CM Port in 2017, the National Audit Office (NAO) noted that the outstanding loans obtained from China EXIM Bank (ChEXIM) to construct the port were not recorded in the financial statements of either the Treasury or the Sri Lanka Port Authority (SLPA). Each organisation claimed that the loan ought to be recorded under the other. The SLPA retained shares in the joint venture running the port, while the Treasury received the proceeds from the lease. Did that mean the Hambantota loans disappeared altogether? Who repaid them? This was a critical puzzle for us to solve in 2022.
NAO audit reports and Parliamentary documents proved that the Treasury continued to repay the port loans even after the lease. The Treasury’s External Resources Department (ERD) provided the repayments data as a result of an RTI. We also knew from past Treasury Annual Reports that the government prior to 2015 had moved some foreign project loans to being liabilities of the SOEs that had implemented the respective projects. Most other foreign loans obtained by SOEs in Sri Lanka are done with a sovereign guarantee from the Treasury, leading them to be reported in the Treasury’s Annual Reports as contingent liabilities. But the Hambantota Port loans did not appear there, since they were loans originally obtained by the Treasury and then transferred to the SOEs.
Luckily, the NAO compiled a special report on public debt that was released in mid-2022, which also covered the fate of the loans transferred to the SOEs, including the Hambantota Port loans. The data in the special report helped confirm that the CBSL had in fact been reporting these foreign loans moved to the SOEs as part of its definition of public debt since 2015. Therefore, they had not disappeared from the official coverage of public debt. But if one only focused on central government debt, they would not be covered and would have appeared to have been ‘hidden debt.’
Avoiding a future puzzle
One of our key conclusions has been that Sri Lanka’s public institutions that have responsibilities to record and report on public finances typically do their individual responsibility quite well. Once we knew what to and where to send RTIs for, we usually ended up getting good data and information. But each individual institution did not appear to coordinate or communicate effectively with each other. Processes were followed well, without checking if there was anything that can be done to improve or any shortfalls in the way the data was being reported publicly. As a result, while the CBSL reported on the SOE loans moved around, the Treasury’s reporting formats failed to disclose them as a distinct part of the public debt. By following the NAO and Parliamentary documents, we were able to fill in the blanks and prove that there was no ‘hidden debt.’
Since the sovereign default and economic crisis, Sri Lanka’s Ministry of Finance has been more proactive in its reporting of public debt as a result of requirements from the IMF and creditors, with a quarterly debt bulletin being the key channel of public disclosure. With the transition to an integrated Public Debt Management Office (PDMO) that combines responsibilities for debt management that had been spread across multiple institutions previously, there is expectation for further improvements in debt data reporting. A key factor is that the reporting will expand to cover all potential definition of public debt, including SOE debt that does not carry explicit sovereign guarantees. Reporting on numbers alone will not help. Just knowing outstanding amounts also does not tell the whole story. There should be disclosure of disbursements and repayments, by creditor and even by individual loan. The public at large will benefit if all this data is utilised to provide narrative explanations for changes in the data from one period to another. Few find numbers speaking to them without a story to follow alongside.
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