In his statement, the MP claims that Sri Lanka’s assets are USD 400 billion, and commitments are USD 47 billion, therefore Sri Lanka is not bankrupt, but instead does not have the dollars to meet its day-to-day expenses.
In the context of national accounts, the term bankrupt is used colloquially; the formal accounting term used is insolvency. To check this claim, FactCheck.lk will evaluate the distinction between the accounting definition of: (1) Insolvency, and (2) Illiquidity.
According to international definitions, solvency of a nation requires that the present discounted value of projected future expenditures, including interest payments, do not exceed the present discounted value of all projected future revenues. The assessment of insolvency occurs when it is expected that this condition cannot be met within a set of policies that are economically, socially, and politically feasible. Illiquidity occurs when the debtor’s liquid assets and available financing are not enough to meet its debt related payments during a particular time period. Therefore, a state of illiquidity can occur even while the country is solvent.
As such, FactCheck.lk interprets the MP as claiming that Sri Lanka is not insolvent but only in a state of illiquidity.
According to the IMF’s staff report for the 2021 Article IV consultation with Sri Lanka, which Sri Lanka has accepted, the country’s ‘public debt is unsustainable and points to a clear solvency problem’. This assessment contradicts the MP’s claim that Sri Lanka is not insolvent (he uses the term “bankrupt”).
FactCheck.lk also consulted the Ministry of Finance (MoF) and the Central Bank Annual Reports to evaluate the MP’s claim that Sri Lanka has more assets than its liabilities. According to the MoF Annual Report 2020, total assets owned by the central government and key SOEs as of end 2020, amounted to only LKR 12,439 billion, i.e. USD 66.7 billion (at end 2020 exchange rate). The reported value is a bit higher (LKR 13,109 billion) due to double counting of equity in state entities. This asset value would also have reduced in dollar terms subsequent to the currency depreciation since March 2022. Meanwhile, total public debt (central government debt and publicly guaranteed SOE debt) as of end 2020 amounted to LKR 16,427 billion, i.e., USD 88 billion. It would be even higher if unstated liabilities such as the already accrued public sector obligations on future pension payments were counted. Therefore, the net assets (assets minus liabilities) of the government are negative because stated liabilities of the government are greater than its assets. This contradicts the MP’s claim about the net assets position of the government as well.
The MP’s claim on the country not being bankrupt (meaning insolvent) and on the net asset position of the country, are both contradicted by the available facts. Therefore, we classify the MP’s statement as FALSE.
(NB: The IMF notes that less than half of the SOEs debt have been guaranteed. As such, if all SOE debt was added, the total stated public sector liabilities would amount to a larger figure of USD 94 billion.)
*FactCheck.lk’s verdict is based on the most recent information that is publicly accessible. As with every fact check, if new information becomes available, FactCheck.lk will revisit the assessment.
UNCTAD, Debt Sustainability Analysis (DSA): An E-Learning Training Course, https://vi.unctad.org/debt/debt/m1/definition.html
International Monetary Fund, IMF Country Report No. 22/91, March 2022, https://www.imf.org/-/media/Files/Publications/CR/2022/English/1LKAEA2022001.ashx
Ministry of Finance Annual Report 2020
CBSL Annual Report 2021