Cabinet approval to strengthen fiscal responsibility

• Green light to revise Fiscal Management (Responsibility) Act No. 3 of 2003 
• New regulations to have more teeth; Govt. must give reasons for deviating from fiscal targets
• Attempt to make Govt. more fiscally responsible, transparent

The Cabinet this week gave approval for the Government to revise the Fiscal Management (Responsibility) Act No. 3 of 2003 to increase responsibility in not meeting deficit targets. 

Fiscal operations in Sri Lanka have been functioning under the Fiscal Management Responsibility Framework introduced by the Fiscal Management (Responsibility) Act No. 3 of 2003. Some of the Fiscal Targets have been revised in 2013 and in 2016. 

The Cabinet of Ministers approved the proposal presented by Finance Minister Mangala Samaraweera to revise the Fiscal Management (Responsibility) Act No.3 of 2003 strengthening the country’s Fiscal Management in order to revise the existing Fiscal Management Framework, or otherwise insert those amendments to the Fiscal Management Bill which is being drafted presently. 

Central Bank Governor Dr. Indrajit Coomaraswamy had earlier said the Fiscal Management (Responsibility) Act No.3 of 2003 does not have adequate provisions to hold the Government responsible if it deviates from fiscal targets including Budget deficit targets. 

The new regulations propose to make the Government legally responsible to declare why they have deviated from fiscal targets and outline how recovery can be mapped out. Measures to make these changes have been in operation since 2016. 

Sri Lanka’s fiscal targets, particularly deficit targets are routinely missed, partly due to natural and manmade disasters. The Government missed deficit targets in both 2017 and 2018 due to a drought, slower than expected growth and other issues. After the Easter Sunday attacks, the Finance Ministry is currently engaged in reprioritising expenditure to meet the 4.8% target for 2019.