The budget balance for 2020 is -LKR 2,090 billion (-14.0% of GDP) while the budget balance for 2019 remains at -LKR 1,016 billion (-6.8% of GDP).

It is important to note that this is the first time the budget deficit has increased to more than 14% of GDP, since 1982. In addition, this is the first time ever the budget deficit is higher than government revenue in both GDP and nominal terms.

Note:

The figures reported in the infographic above differ from the CBSL reported figures. The CBSL data uses an incorrect accounting method in arriving at government expenditure and the budget deficits for 2019 and 2020.  

The Annual Report of the Central Bank of Sri Lanka, 2020 states that the government budget balance for the year 2020 was -11.1% of GDP. In 2019, the budget balance as a share of GDP was revised to -9.6% from the previously reported figure -6.8%.

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]. As a result, the budget deficit for 2020 is understated, and the budget deficit for 2019 is overstated.

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 the budget deficit creates a false impression of fiscal health and is tantamount to accounting fraud.

For more information refer Factcheck - https://bit.ly/2SQG485

[1] Page 155 Central Bank Annual Report 2020

[2] Page 196 Ministry of Finance Annual Report 2019