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Economy
Mahinda Rajapaksa

Prime Minister Mahinda Rajapaksa fails to account for the accounting method

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“…the budget deficit which my government brought down to 5.7 percent of Gross Domestic Product (GDP) in 2014, has increased to over 9.6 percent of the GDP by 2019…

2020 Appropriation Bill | November 13, 2020

Posted on: 19 November, 2020

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False

Fact Check

In the second reading of the 2020 Appropriation Bill, Prime Minister Mahinda Rajapaksa claimed that the budget deficit for 2019 increased to 9.6% of GDP.

To evaluate this claim, FactCheck consulted annual reports from the Ministry of Finance (MoF).

The national accounting system in Sri Lanka uses the modified cash-based accounting method. Under this method of accounting, expenditure and revenue is only recognized when cash is paid or received: unspent budget allocations are cancelled at the end of the financial year.

According to the modified cash-based accounting method, the deficit in 2014 was 5.7% of the GDP and 6.8% of the GDP in 2019.

The MoF Annual Report 2019 audited by the auditor general identifies unpaid claims not included in financial statements amounting to Rs. 243 billion (1.6% of GDP) in 2019. Similarly, in the auditor general’s report in 2014, he identifies unpaid claims of Rs. 190 billion (1.8% of GDP) not included in financial statements.

With the inclusion of the unpaid claims, the deficit was 7.5% of the GDP in 2014 and 8.4% of the GDP in 2019.

It is incorrect to compare a value of 5.7% in 2014, which does not account for unpaid claims, against a figure of 8.4% in 2019, which accounts for unpaid claims. It is also inaccurate to calculate the budget deficit by considering unpaid claims in expenditure without applying the same basis to revenue.

The prime minister made an incorrect comparison and the percentages for 2019, both with and without unpaid claims, fall below his stated figure. Therefore, we classify the prime minister’s statement as FALSE.

*FactCheck’s verdict is based on the most recent information that is publicly accessible. As with every fact check, if new information becomes available, FactCheck will revisit the assessment

Additional Note:

In the MOF Annual Report 2019, section 1.6.2.1 on Public Debts, the Auditor General in observes that foreign loans totalling Rs. 210 billion during 2019, 2018 and previously, had not been accounted as foreign borrowings. Unaccounted foreign loans do not get added to the budget balance. The budget balance refers only to the difference between expenditure and revenue. Unaccounted loans would get reflected in public debt.  It is also not clear how much of the Rs. 210 billion was realised in 2019. Therefore, we did not include the Rs. 210 billion unaccounted foreign loans in our calculations.

Exhibit 1: Budget deficit (% of GDP)

 



Sources