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The Government has decided to introduce a new Public Finance Management Act, repealing the Fiscal Management (Responsibility) Act No. 3 of 2003 to ensure new fiscal terms can be set to take effect with the 2025 Budget.
The proposal to this effect submitted by President Ranil Wickremesinghe in his capacity as the Finance, Economic Stabilisation and National Policies Minister was approved by the Cabinet of Ministers at its meeting on Monday.
The Fiscal Management (Responsibility) Act No. 3 of 2003 is a piece of legislation intended to enact fiscal rules in Sri Lanka. The Act provides for measures to ensure greater transparency and reporting of fiscal performance to facilitate greater public scrutiny of the same.
The original Act, enacted in 2003, sets out three key fiscal limits to be achieved by specified timelines. First, prohibiting the budget deficit from exceeding 5% of GDP from 2006 onward, secondly to specifying the Central Government limit of 85% of GDP by the end of 2006 further specified that Central Government debt should not exceed 60% of GDP by the end of 2013 and thirdly to set limits on the Government’s contingent liabilities.
However, this Central Government debt limit was increased through an amendment to the Act in 2013. The initial limit set at 60% was increased to 80% in 2013 and the time frame for compliance was extended till 2020. Since the 2020 timeframe was breached, in June 2021, the Act was further amended to extend the Central Government debt limit of 80% of GDP till 2030.
“The regular violations of the Act and amendments to the Act to accommodate fiscal profligacy resulted in the economic crisis that we all endure,” Cabinet Co-Spokesman and Minister Bandula Gunawardena claimed, who was instrumental then in introducing the legislation when he was the Deputy Finance Minister.
Although the Act provides for non-compliance with the said fiscal rules only with the approval of the Parliament in very special cases, there are no provisions for deviating from the said rules. Therefore, he said the Government has committed to introducing a new Public Finance Act to take effect with the 2025 Budget in line with the Extended Fund Facility program of the IMF.
Economists however opined that Parliament too has consistently failed in its responsibility to ensure that the executive is held accountable for such debacles in public finance.
“These felonies undermine the credibility of the very institutions that are intended to provide credibility,” they claimed.
The Auditor General too has consistently raised concerns regarding the breach of the Fiscal Management (Responsibility) Act in recent Audit Reports of the Finance Ministry financial statements.
