Wednesday Jun 10, 2026
Wednesday Jun 10, 2026
Wednesday, 10 June 2026 06:25 - - {{hitsCtrl.values.hits}}
The Auditor General has warned of a “high potential” for foreign loan disbursements received during 2025 to have remained unrecorded in both the Government’s Financial Statements and the Debt Management System, while identifying a series of discrepancies, reconciliation gaps, and reporting inconsistencies relating to Sri Lanka’s foreign debt records.
The observations, contained in the audit review of the Government’s 2025 Financial Statements, highlight weaknesses in the recording, reconciliation, and reporting of foreign borrowings at a time when Sri Lanka is seeking to strengthen debt governance following the completion of sovereign debt restructuring and the establishment of the Public Debt Management Office (PDMO).
The Auditor General noted that a previously identified difference of Rs. 1.07 billion relating to three foreign loans as at 31 December 2024 remained unresolved. In addition, a net difference of Rs. 2.672 billion was observed between the opening balances reported in Stock and Flow Report No. 01 of the Debt Management System as at 1 January 2025 and the corresponding balances disclosed in Note 26(ii) of the Government’s audited Financial Statements as at 31 December 2024.
According to the audit, additional loan disbursements relating to the 2024 financial year had not been recorded in either the Debt Management System or the Financial Statements as at that date, raising questions regarding the correct accounting period in which those borrowings should have been recognised.
Although the Director General of the Treasury Operations Department informed auditors that no foreign loan proceeds received during 2025 had been omitted from the year’s accounts, the Auditor General stated that there was a “high potential for unaccounted disbursements received during the year 2025” that had not been recorded in either the Debt Management System or the Financial Statements.
The audit also questioned the treatment of certain foreign borrowings and related expenses, noting uncertainty over whether expenditures associated with those loans had been recognised in the appropriate accounting periods and whether related interest costs had been calculated for the correct periods.
A separate finding highlighted a discrepancy involving an International Monetary Fund (IMF) loan recorded under the Rapid Financing Instrument (RFI) and Sri Lanka’s 2023-2026 Extended Fund Facility (EFF) arrangement. The Government’s Financial Statements disclosed borrowings and a closing balance of SDR 150.5 million, equivalent to approximately Rs. 63.9 billion. However, auditors found no corresponding borrowing or closing balance recorded in the Stock and Flow Report No. 01 of the Debt Management System, raising concerns over information appearing in the Financial Statements that was not available in the source debt-recording system.
The Auditor General also identified several inconsistencies in the reporting of loan disbursements.
In respect of four loan agreements, disbursements reported in the Financial Statements were overstated by a total of Rs. 2.014 billion. In addition, disbursements amounting to Rs. 1.171 billion disclosed in the Financial Statements were not included in the Debt Management System. The audit further found that disbursement values relating to 12 loan agreements were overstated by Rs. 53 million in the Debt Management System, while disbursements relating to 17 loan agreements were overstated by Rs. 359 million in the Financial Statements.
The audit also noted that negative loan disbursements amounting to $ 266,000, equivalent to approximately Rs. 80 million, had been recorded in relation to two loan agreements. In a separate observation, auditors found that $ 266,080 and SDR 900,090, amounting to approximately Rs. 449 million, had been returned to borrowers in respect of five foreign loans, while the reasons for those transactions had not been disclosed in the Financial Statements.
The Auditor General further highlighted inconsistencies relating to an International Sovereign Bond (ISB).
According to the Debt Management System, the opening balance as at 1 January 2025 was $ 1.532 billion or Rs. 448.35 billion. However, the Financial Statements reported an opening balance of $ 1.544 billion or Rs. 451.62 billion, resulting in a difference of $ 11 million or Rs. 3.27 billion. The reasons for the discrepancy were not disclosed.
Debt service payments relating to the same Bond also differed between the two records.
The Debt Management System showed payments of $ 330 million or Rs. 98.4 billion during the year, while the Financial Statements reported payments of $ 341 million or Rs. 101.86 billion, creating a further difference of $ 11 million or Rs. 3.46 billion. The audit noted that the reasons for this difference were likewise not disclosed.
The audit also found differences between Government debt records and confirmations received from lenders.
In one case, the Financial Statements and Debt Management System reported an outstanding balance of $ 12.55 million as at end-2025, while lender confirmations indicated a balance of $ 5.57 million, resulting in a difference of $ 6.98 million. For two other foreign loans, balances reported in Government records differed from lender confirmations by a combined EUR 21,098.
Another finding related to inconsistencies in identifying creditors.
While the Debt Management System stated that two loans had been obtained from the Asian Infrastructure Investment Bank, the Financial Statements identified the lender as Agence Française de Développement.
The Auditor General also identified errors relating to foreign currency conversions and exchange loss calculations.
In one instance, borrowings obtained in two foreign currencies had been incorrectly converted. In another, an adjustment of SDR 2,064 to a loan balance had not been disclosed in the Financial Statements, resulting in an incorrect foreign exchange loss calculation. Auditors also found that foreign exchange losses differed between the Financial Statements and the Debt Management System because disbursement values for several loans had been recorded differently in foreign and local currency terms.
One of the most significant observations concerned loan balances amounting to Rs. 518.293 billion relating to eight categories of borrowings obtained in 2022. The Auditor General noted that these balances continued to be maintained outside the Statement of Financial Position and that no assets acquired through those loans had been identified in the Government’s Financial Statements as at end-2025.
According to the audit, accounting for the loans in this manner without recognising the corresponding assets had contributed to an increase in the negative balance of the Government’s General Fund.
The findings underscore persistent weaknesses in the reconciliation of debt records across the Government’s Financial Statements, the Debt Management System, and lender confirmations, highlighting the need for stronger controls and improved transparency in the management and reporting of Sri Lanka’s foreign debt obligations.
