Ravi K Calls for professionalism and accountability in public accounting

By Devin Jayasundera

Finance Minister Ravi Karunanayake yesterday claimed that Sri Lanka’s weak debt management practices, which have created a narrowing fiscal space, were a result of a lack of professionalism and archaic public accounting systems. 

He made these comments at an event jointly organised by the World Bank, Asian Development Bank and Chartered Accounts of Sri Lanka which seeks to enhance the quality of public financial reporting in South Asia.

While Sri Lanka’s public institutions predominantly use cash-based accounting, the global trend has significantly shifted towards the adoption of accrual accounting practices. Cash basis accounting methods are accused of hindering transparency and comprehensive public financial reporting as they provide minimum disclosure of their debts, liabilities and assets. The country has already adopted 10 out of the 32 International Public Sector Accounting Standards. 

Karunanayake lamented that it was the lack of political resolve and resistance towards better financial management that had stalled the implementation of accrual accounting at public institutions. “Cash-based accounting has been there for donkey’s years,” he stated. 

“An attempt to change has political reactions. Last year we tried to modernise the accounting system in Education and Health after getting approval from Parliament. It took a couple of days for them to understand what we were thinking.” 

Addressing the gathering, Karunanayake displayed humour over how the previous Government, which is often accused of large-scale financial misconduct, gained eligibility for loans from donor agencies. “I’m surprised they lent to the Government,” he opined. 

Karunanayake said that the new Government’s diligence towards upholding the principals of financial accountability would spark a newfound confidence in donor agencies, particularly the World Bank. “I’m sure now after we do the correcting and accrual accounting you will be tripling the lending to our country,” he said. 

In reference to the heavily indebted SriLankan Airlines, which has incurred a total loss of Rs. 148 billion as of end of March this year, Karunanayake said it was unimaginable how auditors and lenders allowed such a financial fiasco to take place. 

With the Budget to be presented next week, Karunanayake outlined that political realities took first priority and requested international agencies to take account of this when laying down conditions.

“We are desperate to get pro-growth movement in this country. But we need to ensure we are walking towards voluntary acceptance towards IMF conditions.”

Speaking at the event, Central Bank Governor Indrajit Coomaraswamy recounted the difficulties in debt forecasting as a result of traditional public financial reporting methods.

“In terms of the overall public finance management, the Central Bank plays a debt management agency role for the Government of Sri Lanka. One of the difficulties that we had in terms of performing the function is that there has been relatively short visibility of what the Government’s borrowing requirements are. As Government financial reporting is strengthened that visibility gets longer and debt management can become sounder,” he said. 

World Bank Country Director Idah Z. Pswaray Riddihough said that the accountability of the large amount of State-led financing activities going on in these countries could be ensured only through a proper monitoring mechanism. “To do this the legislature and the public need information on how those resources are managed and used. This information is provided through public financial reporting,” she said.