Public Sector Governance and Accountability Series: Budgeting and ...

Accrual Accounting in the Public Sector 195
suggested by some professional accounting bodies. Accountability might be
best maintained if government adopted net debt measures as the primary
fiscal indicator when operating in an accrual accounting environment.
Accrual Accounting in Developing Countries
In previous sections, views are mixed on the value of accrual accounting in
the public sectors of industrial countries. Furthermore, the interaction of
accounting regime and fiscal rules can result in very different incentives
facing budget makers. How relevant are these debates to developing countries?
In a study for the Asian Development Bank, Athukorala and Reid
(2003: x) argue that developing countries face a fundamentally different
public sector environment and challenges:
DMCs [developing member countries] confront obstacles that developed countries
do not face: (i) capacity constraints can be overwhelming; (ii) there may be
more urgent priorities than improving accounting; (iii) corruption and vested
interests can undermine efforts; (iv) donor activities may reduce coherence;
(v) reform fatigue may impede efforts; (vi) limited technological infrastructure
may reduce options and raise costs; and (vii) supreme audit institutions ...may
have limited capacity.
These different environmental factors lead Athukorala and Reid (2003: 54)
to question whether the accounting changes advocated by some for industrial
countries will have positive results in the context of developing countries:
The challenges faced by DMCs are fundamentally different from those of
developed countries—the prescriptions and processes that are appropriate for
the latter may hold disappointing results in the former. DMCs generally have
greater difficulty maintaining fiscal discipline and pursuing efficient budget
outcomes. They have weaker control of their budgetary fate, and outcomes that
appear to be the result of lax expenditure management often are byproducts of
under-development.
Furthermore, transitional economies face additional challenges:
Countries transiting from central planning to a market basis (e.g., Uzbekistan)
are different too. Many DMCs have small public sectors, but transitional country
governments tend to be very large relative to the overall economy. They do
not have the option of allowing public management institutions to evolve as the
public sector grows, but must replace subsidies with transfers, dismantle state
enterprises, establish and administer new tax systems, and forge regulatory
institutions that facilitate open, robust markets. The progress made by some