Former Governor Cabraal thrice wrong on passing the buck

Fact Check

In his statement, former Governor of the Central Bank of Sri Lanka (CBSL) Cabraal claimed that during the period of 2015-19:  

1. Sri Lanka’s economic growth had collapsed gradually from 7% to 2% 

1. Sri Lanka’s foreign debt increased by USD 15 billion  

1. Sri Lanka’s foreign reserves had reduced by USD 1 billion  

To check these claims, FactCheck.lk consulted the Annual Reports of the CBSL and the Annual report of the Ministry of Finance (MoF).  

To check the first claim, Sri Lanka’s economic growth is assessed by the annual growth rate in real GDP. Exhibit 1 shows that at the end of 2014 Sri Lanka had a growth rate of 5% and in 2019 the real GDP growth rate was 2.3%. The former governor may have used the average growth rates from 2010 to 2014, which amounts to 6.8%. However, using those figures, the average growth rate from 2015 to 2019 was 3.7%. The higher decline is on the average, where it is still 3.1% and not the 5% drop that is claimed. 

To check the second claim, FactCheck.lk calculated the increase in Sri Lanka’s external public debt, which includes State Owned Enterprises debt under sovereign guarantee. Exhibit 2 shows a USD 12.5 billion increase between end 2014 and end 2019, and not USD 15 billion as claimed by the former governor.  

On the third claim, Exhibit 3 shows that reported gross official reserves reduced by only USD 0.57 billion between end 2014 and end 2019, and not USD 1 billion as claimed by the former governor.  

The former governor’s figures do not align with all three of his claims. Therefore, we classify his statement as FALSE.  

NB. However, by the end of 2014, 27% of the gross official reserves consisted of short-term swaps, and by the end of 2019 only 5% of the gross official reserves consisted of short-term swaps. These swaps are often used to bridge a temporary foreign currency liquidity shortfall and boost foreign currency reserves. Therefore, they must be excluded to assess the increase in foreign currency reserves. Accordingly, Exhibit 3 shows that between end 2014 and end 2019 the official reserves excluding swaps increased by USD 1.27 billion.

Exhibit 1: Real GDP growth rates 2010 – 2019 

Source: CBSL Annual Report Special Statistical Appendix 2020  

 

Exhibit 2: Total external public debt 

Source: Demystifying increase in Sri Lanka’s debt, Verité Research 

 

Exhibit 3: Sri Lanka’s Reserve Position 

Source: CBSL Annual Report Special Statistical Appendix 2020