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Incorrect accounting measure understates significant increase in government expenditure in 2020

The government expenditure for 2020 is LKR 3,340 billion (23.1% of GDP) while the expenditure for 2019 remains at LKR 2,915 billion (19.4% of GDP). These figures differ from the CBSL's 2020 annual report figures, which used incorrect accounting treatment in arriving at government expenditure in 2020 and 2019.  



The government expenditure for 2020 and the revised figure for 2019, as reported in 2020 CBSL Annual Report, is incorrect.

The Annual Report of the Central Bank of Sri Lanka, 2020 states that the government expenditure for the year 2020 was 20.3% of GDP. In 2019, the expenditure as a percentage of GDP was revised to 22.2% from the previously reported figure 19.4%.

The CBSL reported numbers are incorrect because the government expenditure for 2019 was adjusted by shifting a sum of LKR 422.6 billion, incurred in 2020, to 2019. This was done in the view of accounting for the payment of arrears spilled over from 2019.[1] This overstates expenditure in 2019 and understates expenditure in 2020.

The Annual Report of the Ministry of Finance 2019 states that Sri Lanka’s national accounting system uses the modified cash-based accounting method.[2] Under this method, expenditure and revenue is only recognized when cash is paid or received, which means unspent budget allocations are cancelled at the end of the financial year.

According to modified cash-based accounting, it is not permissible to record an expenditure outlay of Rs. 422.6 billion made in 2020 in the accounts of 2019. It is also inaccurate to deviate from cash-based accounting for expenditure, and not apply the same accounting measure to revenue in arriving at the budget deficit. Deviating from accounting principles to understate expenditure creates a false impression of fiscal health and is tantamount to accounting fraud.  


For more information and analysis refer Factcheck -


[1] Page 155 Central Bank Annual Report 2020

[2] Page 196 Ministry of Finance Annual Report 2019

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