By Asoka S. Seneviratne –

Prof. Asoka.S. Seneviratne

“Efficiency is doing things right; effectiveness is doing the right things.” — Peter Drucker

The recent diversion of US$2.5 million intended for a bilateral debt repayment to Australia is not merely a cybercrime; it is a systemic indictment of the new debt management framework. While the Public Debt Management Act of 2024 sought to modernize Sri Lanka’s fiscal operations by centralizing power within the Treasury, it inadvertently created an “operational vacuum” by stripping the Central Bank of Sri Lanka (CBSL) of its execution role. This article argues for a strategic course correction: while the Treasury should retain the authority to organize and manage debt policy, the technical execution and remittance of foreign debt must be returned to the professional custody of the CBSL to safeguard national interest and international credibility.

The USD 2.5 Million Diversion: A National Security Warning

The news that US$2.5 million intended for debt repayment to Australia was siphoned into fraudulent accounts is a chilling wake-up call. This was not an isolated glitch but a failure at the heart of our sovereign obligations. When a nation is undergoing delicate debt restructuring, the most valuable currency it possesses is not the Dollar or the Rupee, but trust. For a creditor like Australia—a key partner in our recovery—to report that a scheduled payment never arrived is an international embarrassment that borders on a national security threat.

The Great Decoupling: PDMA 2024 and the Institutional Vacuum

Under the Public Debt Management Act (PDMA) No. 33 of 2024, the operational heart of debt management was transplanted from the CBSL to the newly formed Public Debt Management Office (PDMO) within the Treasury. The logic was to grant the CBSL “monetary independence.” However, in decoupling the Central Bank from the fiscal agent role it held for 75 years, the government created a gap where institutional memory and rigorous protocol used to reside. We have replaced a battle-tested system with an experimental office that, as recent events suggest, lacks the “vessel” to hold the weight of sovereign execution.

A Legacy of Precision: The CBSL’s 75-Year Tenure as Fiscal Agent

For seven and a half decades, the Public Debt Department (PDD) of the CBSL managed the nation’s borrowing and repayments under the Monetary Law Act. During this tenure—through insurgencies, civil wars, and prior economic shocks—the technical execution of debt service was, for all intents and purposes, flawless. The CBSL operated with a “Banker’s Rigor,” employing multi-layered verification, secure SWIFT protocols, and a zero-tolerance culture for error. This history of precision was the bedrock of Sri Lanka’s reputation as a “perpetual repayer” until the 2022 default.

The Vulnerability of Inexperience: Why the Treasury Failed the Execution Test

The transition to the Treasury has placed complex global financial operations in the hands of what appears to be an inexperienced and incompetent group. Managing a debt office is not merely an accounting function; it is high-stakes international banking. The reported “Business Email Compromise” (BEC) that led to the $2.5 million loss suggests a level of operational naivety that would be unthinkable at the Central Bank. When payment instructions are altered via compromised emails and warnings from service providers are ignored, it highlights a catastrophic lack of the specialized training required to handle the state’s checkbook. The above is based on my experience with the Banking Department of CBSL.

Technical Default Risks: The International Cost of Incompetence

Every time a payment fails to reach its destination, Sri Lanka edges closer to a “technical default.” In the eyes of the IMF, the World Bank, and private bondholders, there is little difference between a country that cannot pay and a country that cannot manage its payments. This incompetence drives up the “risk premium” on our future borrowings. If we cannot be trusted to transfer US$2.5 million securely, how can international markets trust us with the billions required for our long-term recovery?

The Cyber-Governance Gap: Email Compromise vs. Central Banking Rigor

Central Banks around the world are fortresses of financial cybersecurity. They do not operate on simple email-based instructions for multi-million dollar transfers; they use hardened, end-to-end encrypted financial messaging systems. By moving the execution to the External Resources Department (ERD) and the Treasury, we moved from a “fortress” to a “glasshouse.” The deletion of data within the ERD systems following the breach points to a deeper malaise—a lack of internal audit trails and oversight mechanisms that are standard in central banking.

The Hybrid Solution: Centralized Planning, Professional Execution

The solution does not require repealing the goal of monetary independence. We must adopt a Hybrid Model. The Treasury and its PDMO should rightfully remain the “Architects” of debt—deciding how much to borrow and at what rate. However, the CBSL must remain the “Contractor” that executes the transfer. In this model, the Treasury provides the authorization, but the actual remittance is performed through the CBSL’s secure infrastructure. This ensures that while the Treasury manages the policy, the professional, “unhackable” machinery of the Central Bank handles the money. My proposal in no way diminishes or encroaches upon the functions of the Treasury. On the contrary, it reinforces institutional integrity by ensuring that both the Treasury and the Central Bank of Sri Lanka operate in full alignment with internationally accepted norms and best practices governing financial transactions. This is not merely an administrative adjustment—it is a necessary step toward credibility, transparency, and responsible economic governance.

Restoring Sovereignty: Reclaiming Credibility in the Global Market

The missing US$2.5 million is a stain on our national image that must be erased through immediate structural reform. We must acknowledge that “independence” for the Central Bank should not mean “divestment” of its most critical technical skills. To prevent further allegations of “missing” funds and to shield our nation from the predatory gaze of cybercriminals and the skepticism of creditors, we must return the execution of foreign debt service to the CBSL. It is the only credible mechanism to guarantee that when Sri Lanka declares a payment has been made, the global financial community has absolute confidence that the funds will be received promptly, in full, and without uncertainty. Equally, it ensures that the receiving party can acknowledge receipt with certainty and satisfaction, eliminating doubt and reinforcing trust on both sides.

*The writer, among many, served as the Special Advisor to the Office of the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993). He can be reached via asoka.seneviratne@gmail.com