Sri Lanka’s missing Balance Sheet

President and Finance Minister 

Anura Kumara Dissanayake

Treasury Secretary Dr. Harshana Suriyapperuma

• How invisible portfolios shape crises and constrain policy

Sri Lanka’s crisis is often described in familiar terms: excessive borrowing, weak fiscal discipline and unsustainable debt.

This diagnosis is not wrong. But it is incomplete.

At its core, the crisis reflects a deeper issue in how sovereign financial positions are assessed and managed. Fiscal analysis remains overwhelmingly focused on flows – deficits, debt servicing and financing needs – while the stock of assets underpinning the public sector receives far less attention.

This distinction matters.

In the period leading up to the crisis, Sri Lanka’s position appeared increasingly fragile when viewed through a flow-based lens. Rising borrowing costs, declining foreign exchange reserves and mounting refinancing pressures pointed towards an inevitable adjustment.

Yet this perspective did not entirely capture the structure of the state’s finances.

Like many countries, Sri Lanka controlled a wide range of public commercial assets: urban real estate, infrastructure, state-owned enterprises and other economically active holdings. These assets were fragmented across institutions, weakly governed and largely absent from fiscal strategy.

As a result, the country was assessed – and managed – primarily  based on its immediate financing position and liquidity constraints.

This led to a critical ambiguity: was Sri Lanka fundamentally insolvent, or was it facing a severe liquidity crisis?

The distinction is not merely technical. It has direct policy implications.

Partial perspective

A liquidity crisis is primarily a question of financing flows – budget deficits, debt repayments and access to foreign exchange. When financing conditions tighten, the response typically focuses on rapid fiscal adjustment: expenditure cuts, tax increases and measures aimed at restoring short-term confidence. The burden of this adjustment is borne broadly across the economy, through lower growth, reduced public services and declining real incomes.

By contrast, questions of solvency are about how public assets are structured, governed and used. A country whose public assets are poorly understood or fragmented may be treated as insolvent even when substantial economic resources exist within the public sector.

In such cases, the absence of portfolio visibility limits the policy response. Adjustment is forced onto the budget, rather than complemented by asset management, restructuring and more strategic sequencing of public resources. This tends to protect existing asset structures while placing the burden of adjustment on the broader population.

Greater visibility of public assets would not necessarily have prevented the crisis. But it could have led to a different policy response. An economy assessed primarily through fiscal flows resembles a diagnosis based on limited information.

A fuller perspective provides a more complete picture, distinguishing between liquidity constraints and underlying solvency.

Portfolio visibility and the policy response

Incorporating such a perspective does not eliminate the need for adjustment. But it can broaden the policy toolkit, allowing governments to complement fiscal measures with asset management, restructuring and improved performance of public assets – often shifting part of the adjustment towards more concentrated and powerful stakeholders.

This distinction matters not only in acute crises, but in how Governments respond to fiscal pressures more broadly.

In advanced economies, similar issues often appear in less visible form. Fiscal debates focus on deficits, debt ratios and rules, while large public asset bases remain outside strategic consideration. The result is not a crisis, but constrained policy choices and suboptimal capital allocation.

Sri Lanka illustrates the more extreme outcome of this asymmetry.

In the absence of a portfolio perspective, public assets remain underutilised, and policy responses are shaped by immediate financing pressures rather than long-term economic capacity. Asset disposals, when they occur, tend to be reactive and fragmented, rather than part of a coherent strategy. This reinforces the cycle.

Countries under pressure are forced to adjust through fiscal contraction or external support, even where substantial economic resources exist within the public sector. Without the institutional capacity to understand and manage these assets, they cannot be mobilised effectively.

The lesson is not that assets eliminate risk. It is the absence of visibility and governance that limits the range of policy responses available in moments of stress.

Crisis mapping

Sri Lanka also highlights something more practical – and often overlooked.

Even amid a crisis, and in a relatively low-capacity environment, it is possible to establish a meaningful overview of public commercial assets within a short period of time. This is not a question of building perfect inventories, but of creating sufficient visibility to inform policy decisions.

It matters because a common objection to such approaches is that they are too complex,  time-consuming and institutionally demanding. Sri Lanka suggests otherwise.

In more advanced economies, where data availability and institutional capacity are significantly greater, similar mapping exercises could be undertaken far more rapidly. Evidence from large metropolitan areas in the US indicates that substantial public asset bases can be identified and structured within days.

The implication is clear. The constraint is rarely technical. It is institutional.

Public assets are among the most important resources any Government controls. Ensuring portfolio visibility is not optional – it is critical for resilience and, in some cases, for survival.

Acting early is clearly preferable, yet it is never too late to establish visibility and begin managing these assets more effectively. The essential lesson is simple: what matters is not when governments start, but that they do –before the assets they already have are overlooked.

(The author is Principal of Detter & Co.)