the government deficit - an illusion - a cover-up

I have attempted in layman's terms to explain some of the reasons for government deficits, that are not as obvious. The Sri Lanka government has always run a deficit, and in a sense that is not bad. However the reasons for the deficit and its relative size, relative to the GNP of the country are the amounts that matter. It is now becoming more important to ensure that the projects giving rise to deficits are in fact those that will produce a tangible economic return in the future, justifying its current spend.

In that regard and light of the earlier blog article I wrote below, transferring the unpaid liabilities of the CEB for the use of fuel (amounting in excess of Rs120 Billion over a period of about 5 years) to the treasury, and the treasury then issuing IOU's in the form of Treasury Bonds to the CPC smacks of a hidden deficit that should have been showed earlier.

This act of deft accounting, at a stroke allows the CEB to claim they are making profits, when hitherto they have not been able to pay their debts, and immediately balloons the government debt by over Rs120B while at the same time not treating this as a deficit for 2011, as it relates to previous years, not shown in those years as deficits.

In similar vein the government can deftly use their surrogates, such as the Bank of Ceylon and Peoples Bank and other government entities to give loans on non commercial terms for their political agenda, and then if they so chose, subsidize this resultant loss in the future through the use of an IOU so the deficit so arising from their actions does not get recorded as such.

This is why the losses of state enterprises is permanent and non recoverable should also form part of the Government deficit, just as the dividends the government received from profitable state enterprises, goes to reduce the government deficit. You cannot do one without the other as is the case at present.

It is interesting that no one seems to have picked up on this simple gimmick and made some public display of accountability that must be borne by the state, and not swept under the carpet.

Need I say that a Central Banker who brings this matter up will lose his or her job or lose the next promotion. Such is life of the brain boxes of the land, whose lips are sealed. At least some ex Central Bankers please write about this, you wont lose your fat pensions on account of this will you?