Prime Minister Mahinda Rajapaksa fails to account for the accounting method

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.

Therefore, we classify the prime minister’s statement as FALSE.

FactCheck is a platform run by Verité Research. 
For comments, suggestions and feedback, please visit www.factcheck.lk.