On 19 June 2019, the Daily FT newspaper quoted the state minister of finance making the above statement in parliament.
Since the statement does not specify a time period for this claim, FactCheck evaluated the claim for each year since the change in government in January 2015.
The claim can be assessed by using a statistic called the “primary balance” that is reported in the Central Bank Annual Report. It is calculated by subtracting all government expenditures, except for interest payments, from the total revenue plus grants received by the government.
If the minister’s statement is correct, new government borrowings would have been required only to repay capital and pay interest on debt. This means that the budget deficit in a year would not be more than the interest payments for that year (See the note below for why capital repayments are not considered). In such years, the primary balance will be positive. However, if the primary balance is negative, this means that revenue and grants have been insufficient to finance the government’s expenditure for that year, even without counting the cost of interest payments. In such a case, the government’s borrowings to finance the budget deficit will exceed the amount needed to service debt (which is the cost of the interest payments). Exhibit 1 shows the primary balance for each year from 2015-2018.
Note: Capital repayment of debt is not classified as government expenditure in public sector accounting. This is because unlike interest payments, which are a cost, capital repayments are simply a change in assets and liabilities, which leaves the net asset position of the government unchanged. For example, if the settlement of the previous debt is financed through new debt, there is no material change to the current financial position of the government. Hence, when all new debt is taken only to finance the repayment of capital payments on past debt and to pay the interest on debt, the budget deficit cannot be more than the cost of the interest payments.
Exhibit 1: Government Fiscal Operations (2015-2018) in LKR million
Exhibit 1 shows that the primary balance has been positive in 2017 and 2018. This means that the minister’s claim is true for the years that he has been State Minister of Finance (since May 2017). However, the primary balance has not been positive in the prior years of 2015 and 2016, which is still under the tenure of the present government.
Therefore, we classify the minister’s reported statement as PARTLY TRUE.
After this statement was reported, the minister has correctly stated in parliament that all government borrowings have been used to repay debt for only the years 2017 and 2018 (Parliament Hansard of 9th July 2019).
- Central Bank of Sri Lanka, Annual Report 2018, Special Statistical Appendix, Table 6, https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2018/en/15_S_Appendix.pdf [last accessed 20 August 2019]
- Central Bank of Sri Lanka, Annual Report 2018, Statistical Appendix, Table 108,
- https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2018/en/14_Appendix.pdf [last accessed 20 August 2019]
- Parliament of Sri Lanka, Hansard of 9th July 2019, https://www.parliament.lk/uploads/documents/hansard/1563163804027083.pdf [last accessed 21 August 2019]
- For the news article, please see: http://www.ft.lk/front-page/All-borrowings-used-to-repay-debt–Eran/44-680288 [last accessed 20 August 2019]