The Auditor General’s Department of Sri Lanka has released its audit review of the Government’s 2025 Financial Statements, revealing a Rs. 2.67 billion reconciliation gap, unrecorded foreign loans, and significant reporting inconsistencies within the Ministry of Finance and the Treasury.
Meanwhile, according to Ministry of Finance reports, Sri Lanka’s total central government debt stood at US$98.96 billion as of June 2026, with the country’s external debt profile showing signs of stabilization following the debt restructuring process.
The Auditor General’s review identified a number of systemic weaknesses, accounting errors, and data mismatches within government financial management systems.
Auditors detected a net discrepancy of Rs. 2.672 billion between the opening balances recorded in the Debt Management System’s Stock and Flow records.
Despite assurances provided by the Treasury, the Auditor General warned of a “high potential” that foreign loan proceeds received during 2025 had completely bypassed both the Government Financial Statements and the core Debt Management System.
The audit further found that loan disbursements had been overstated by Rs. 2.01 billion across four foreign loan agreements due to errors in the financial statements.
In addition, foreign loan balances amounting to Rs. 518.3 billion remain active in government records without any corresponding physical or capital assets being identified in the relevant accounting registers.
A previously reported discrepancy of Rs. 1.07 billion involving three foreign loans as of December 31, 2024, also remained unresolved by the Treasury at the time of the audit.
The review further highlighted discrepancies in the accounting treatment of loans received under the International Monetary Fund’s Rapid Financing Instrument (RFI) and Extended Fund Facility (EFF).
Auditors questioned whether loan-related expenditures and interest costs had been calculated and assigned to the appropriate accounting periods.
The Audit Office also found that the “Rebuilding Sri Lanka” programme is being operated informally through an account maintained under the Deputy Secretary to the Treasury, without the backing of a legally established statutory fund.
Data released by the newly established Public Debt Management Office (PDMO) provides an updated picture of the country’s fiscal position. According to the data, Sri Lanka’s central government debt stood at US$98,965 million, while total external debt amounted to US$37,468 million, reflecting a nominal decline of US$195 million compared to the previous quarter.
The report notes that extensive maturity extensions secured through the external debt restructuring process have significantly reduced immediate pressure on the country’s foreign reserves.
The Ministry also continued its debt repayment programme by launching a cash tender offer to settle the remaining International Sovereign Bonds (ISBs) issued in 2022. All outstanding payments to participating bondholders were successfully completed, strengthening Sri Lanka’s credibility in international financial markets.
To address the data deficiencies and the Rs. 518.3 billion asset mismatch identified by the Auditor General, the Ministry of Finance and the Treasury have initiated a multi-step rectification framework focused on integrating debt management systems with government financial statements.
A key objective of this initiative is to establish a direct connection between the Commonwealth Meridian debt management system, which tracks debt stock and flow data, and the Integrated Financial Management Information System (IFMIS).
The integration is expected to introduce dual-entry verification mechanisms, ensuring that whenever a foreign loan disbursement is recorded, a corresponding asset entry or capital expenditure record is automatically generated, thereby preventing unrecorded inflows.
In response to the Auditor General’s observations regarding informal programme management, the Treasury is also moving to transfer accounts such as the “Rebuilding Sri Lanka” ledger into legally recognized Statutory Funds.
According to the report, this transition will bring such accounts under standard government accounting codes and reduce errors associated with period-end financial recording.
