By C. A. Chandraprema Courtesy The Island

On the day that campaigning ended for the recent local government election, the Auditor General, Gamini Wijesinghe, made some explosive statements about Sri Lanka’s state of indebtedness. Public attention has since focused on more sensational happenings and the AG’s statement has been all but forgotten. However, some days ago, former Auditor General Sarath Mayadunne wrote an article to a Sinhala newspaper upholding the incumbent Auditor General’s statement. So the matter may have been forgotten due to intervening events but it’s not dead. We often see the phenomenon of one person saying something which is endorsed by another person and it soon comes to be the generally accepted view by those who may not be equipped to figure out the veracity of what was said.

The Auditor General’s work in particular takes place in a rarified atmosphere and any pronouncement he makes should be adequately explained to the general public. This letter is a request for more information. I have requested a response to a series of questions which I believe will help our readers to understand the issue at hand better. What the Auditor General said at his controversial press conference on 7 February 2018 as shown on the TV news bulletins that night was as follows:

“If anybody asks me what the debt of the country is, I will have to tell him to ask Vaima (the son of God Sakra). I can’t say what our national debt is because the management of public debt has been turned into such a mess over the past 10 years….There has been excessive recourse to debt and the debt limits set by parliament have been exceeded. Debt has been shifted to other places and concealed…. The former Secretary to the Treasury referred to by some as an ‘economic assassin’ has done much to destroy the financial discipline of the country…The debt figures compiled by the finance ministry include only transactions that go through the consolidated fund. The debt of the provincial councils, local authorities and state enterprises have not been included in the public debt figures of the finance ministry, resulting in a situation where there are piles of debt everywhere…Over the past five years, a lot of loans were taken and we are now in the grace period before the repayment of these loans commence… All this happened because the Treasury Secretary began to work under the President with his powers…. If the Kapuwa defecates inside the devale, God does not take umbrage….”

“Debt according to the records of the Central Bank is Rs. 10 trillion but the balance sheet contains only Rs.1.1 trillion in assets. Because they could not control debt, they concealed it. The loans taken for the Norochcholai Power Plant are with the CEB, and the Loans for the Mattala airport and the Suriyawewa stadium are with the Aviation Authority and loans amounting to Rs. 136 billion taken for rebuilding rural roads are with the RDA. The Pensions Dept. has loans amounting to Rs. 37 billion taken to pay pensions and the interest payable for this money amounted to Rs. 1.3 billion in 2016.”

With regard to these statements, the questions we have to ask are as follows:

1. According to Article 154 of our Constitution, the Auditor General’s assigned task is to audit all departments and agencies of the central government, all provincial councils and all local authorities and each and every enterprise where the shareholding of the government is 50% or above. Article 154(5) of the Constitution vests the Auditor-General with sweeping powers to enable him to carry out his duties, making it mandatory for information to be provided to him and giving him access to all books, records, returns and other documents, stores and other property belonging to the institutions that come under his jurisdiction. That being the case, why has it not been possible for the Auditor General to collect data relating to the outstanding debt of each of the state owned enterprises and other institutions coming under his jurisdiction?

2. In a situation where the Auditor General says that nobody knows how much the country owes and to whom, how is it that the Central Bank can say that they know exactly how much the country owes and to whom and further that they have an unblemished record in meeting debt service payments?

3. Even though the Auditor General says that the debt of the central government has been shifted to various other institutions, and he gave the specific example of the Road Development Authority, the RDA is in fact specifically authorized by its statute to borrow money and even to pay their salaries with borrowed money. In such circumstances, can we find fault with the RDA and other such institutions for having debts on their books?

4. The Establishments Code specifically permits money to be shifted around among institutions under the same ‘chief accounting officer’ (ministry secretary) and this has been going on under all governments. One celebrated case which comes immediately to mind was how Prime Minister R.Premadasa borrowed money from the Colombo Municipal Council for his Gamudawa programmes. When the housing ministry got its allocations from the Treasury, the money owed was paid back to the CMC. He was able to do that because he was the minister of housing as well as local government and both ministries came under the same chief accounting officer. How does the Auditor General view such practical arrangements among government agencies?

5. Even though the Auditor General says that there are piles of debt everywhere thus painting a picture of total confusion, how is it that we almost never hear of any of these various institutions going belly up without being able to repay what they owe? The debts of the provincial councils, local government institutions and the state owned enterprises will be owed almost entirely to local banks. (Only the top rung state owned enterprises would be able to raise money from overseas.) Somehow, all these institutions seem to be keeping the line to the banks open by servicing their debt. What has the local banking industry been telling the Auditor General about the money owed to them by the SOEs, PCs and local authorities?

6. Another statement made by the Auditor General during his controversial press conference was that the country had borrowings of more than Rs.10 trillion in its books but that the assets of the country were only Rs. 1.1 trillion. Laymen like us have been led to believe that only private companies look at their liabilities against their assets. In the case of nations, what matters is the debt to GDP, and govt. revenue figures because the debt is finally paid with the revenue not the assets. Have we been wrong all this while?

7. The assets of a nation are the total value of its housing stock, buildings, factories, mineral deposits, farmlands, tourist attractions and literally everything that stands on its soil which can be given a monetary value. Is there any useful purpose in compiling such information? This writer has seen articles in foreign journals arguing that while the debts of the USA may be USD 20 trillion, they have assets worth hundreds of trillions so things are not so bad after all! If Sri Lanka also compiles its asset values, our debt of Rs. 10 trillion will look insignificant.

Other than making a bad situation look good, what other useful purpose is served by giving estimates of a nation state’s assets in the state accounts?

8. The Auditor General should explain to the public whether there is a difference in the way the accounts of private companies are kept as against the accounts of states and what those differences are. What in particular are the accounting conventions used in the preparation of a State’s accounts in Sri Lanka as against the conventions used in other countries? Without such technicalities being explained, the public will not be able to come to an informed decision about the Auditor General’s assertion that our debts amount to Rs. 10 trillion while our assets amount to only Rs. 1.1 trillion.

Even though former Auditor General Sarath Mayadunne has written a full length feature article to a Sinhala newspaper stressing how significant the present Auditor General’s revelations were, that article does not provide any answers to the questions posed above. Perhaps the problem was that nobody has asked the questions that need answers. Well, we have now posed some specific questions and we would be grateful if the Auditor General explains these matters to the public.