Navigating Sri Lanka's Debt: Better Reporting Can Help – A Case Study on China Debt

Abstract

This brief shows that the failure to factor external debt outside central government agencies leads to an underestimation of Sri Lanka’s debt. This underlying informational problem is illustrated in three sections. The first section outlines the difference between public external debt and central government external debt. The second section demonstrates the lack of visibility on the composition of external public debt figures using the example of how Sri Lanka reports its external public debt to China as a case study. The analysis exposes a loophole, by which the debt statistics can be manipulated by moving the debt from the books of the central government to the books of SOEs. The final section concludes by highlighting the critical importance of improving the reporting of Sri Lanka’s debt position to better reflect its debt dynamics and obligations.