News
Central bank shifts between US$2.5m ‘fraud’ and ‘incident’ in explanation that falls short
View(s):By Kapila Bandara
The Central Bank of Sri Lanka (CBSL) this week left the floor littered with pieces of the jigsaw puzzle that is the US$2.5 million (about Rs 817.5 million) cross-border transaction involving the Finance Ministry and Export Finance Australia that was ambushed by cybercriminals.
CBSL Governor Nandalal Weerasinghe did not specifically say the Central Bank carried out the transaction on behalf of the Public Debt Management Office (PDMO) or any other authority. And still, he tried to explain how the CBSL is “involved” as a banker to the government and acts on “instructions” of the Ministry of Finance.
First, he made it clear the “incident” was in an institution under the Ministry of Finance. “We are involved” (api sambandai) he said, but as bankers to the government as laid down in the statute. There was no clarity on whether the CBSL was “involved” in the questionable transaction or if he was referring in general to the process the CBSL had adhered to in the pre-PDMO decades under the CBSL’s Public Debt Department, which had handled public debt management.
He said he was explaining the process but left unfilled gaps about the reckless handling of a multi-million dollar transaction.
The lack of clarity gave rise to concerns the CBSL may have mishandled crediting the funds to Export Finance Australia and is now saying it dutifully carries out “instructions” of the Ministry of Finance while side-stepping a part of the responsibility, if any.
He said the CBSL, “as the banker”, has no authority to amend payment instructions of the Ministry of Finance. And he would not say who confirms that a payment had been credited successfully.
Dr Weerasinghe acknowledged “a fraud” in the “debt payment” transaction in trying to explain the roles of the CBSL; the Public Debt Department of the CBSL; as well as the Public Debt Management Office and the External Resources Department (ERD) of the Finance Ministry, and noted that the transaction happened in an institution under the Ministry of Finance. He declined to be drawn into commenting on the ERD. “I do not know about its system, nor can I say.” He would not name the “institution’’.
The ERD is responsible for arranging and managing Sri Lanka’s external borrowings, among other things. But not debt management.
Dr Weerasinghe said that when an institution of the Ministry of Finance gives a payment instruction, the CBSL’s ‘Chief Accounting Department’ completes it. When the Public Debt Department was operating, then again, the Finance Ministry would give instructions. He mentioned the PDD’s back office entering the data.
Records show that PDD had four divisions based on functions — front office, middle office, the back office, and the Lanka Secure division. The back office handled external debt data recording and payment procedures. The front office handled all securities issued domestically. The middle office kept records of debt and made an annual borrowing plan, among other things.
The new PDMO became operational in December 2025 and took over debt management functions from the CBSL’s Public Debt Department, which maintained a fine track record for 76 years. PDMO was set up under the Public Debt Management Act No. 33 of 2024 (PDM Act) in December 2024.
Dr Weerasinghe said that during the transition from CBSL’s Public Debt Department to the PDMO, foreign debt servicing was done by PDMO staff “using our system”, but it is the PDMO which authorised and entered data and all that. The PDMO carried out some operations within the Central Bank using the CBSL system during that transition, he said.
Dr Weerasinghe said he understands that many changes have taken place recently.
In late October 2025, Export Finance Australia and Sri Lanka signed a bilateral debt restructuring agreement for USS$39m. Australia is a member of the Paris Club’s Official Creditor Committee and a trusted partner of choice for Sri Lanka through 75 years. When Sri Lanka went bankrupt in 2022 economic, Australia responded with immediate humanitarian food security and health assistance. There is also regional cooperation as Indian Ocean partners.
PDMOs framework was recommended by an IMF technical team, considering below par reporting of debt and fragmented institutional structure. IMF also recommended the office be within the Finance Ministry. Until the PDMO was formed, public debt was managed for decades by the Public Debt Department — putting the CBSL in a fiscal agency role — the ERD, and Treasury Operation Department.
At the time, the IMF said the PDD “does not have specialised IT systems for recording domestic debt and instead uses Excel and Access databases’’. Access database was used for Sri Lanka Development Bond issuance.
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