Government to enact a new Public Financial Management Act this month
A new Public Financial Management Act is to be enacted in Parliament this month to strengthen the fiscal responsibility framework, budget formulation and execution.
The relevant bill is being finalised with the aim of improving the responsible fiscal management process when dealing with public finances and to take substantial decisions based on efficient resource utilisation.
The government has taken this decision in accordance with the recommendation made by the International Monetary Fund (IMF) on enhancing budget formulation and the fiscal framework
The proposed Act will strengthen transparent financial systems and effective performance management by giving freedom to officials to manage public finance efficiently and making them accountable for their responsible projects, the relevant cabinet memorandum revealed.
It will have provisions to introduce reforms and modernise the accounting and reporting standards and making public sector accountability as a mandatory requirement.
The proposed Act will be repealing the Fiscal Management (Responsibility) Act No. 3 of 2003 ensuring new fiscal terms to take effect with the Budget 2025.
This original Act has stipulated three key fiscal limits to be achieved by specified timelines, including restriction of the budget deficit from exceeding 5 per cent of GDP from 2006 onward, requiring the government limit of 85 per cent of GDP by the end of 2006.
It has prohibited the government from exceeding 60 per cent of GDP by the end of 2013 while setting limits on its contingent liabilities.
Nevertheless, the government debt limit had been increased through an amendment to the Act in 2013. The initial limit set was increased to 80 per cent from 60 per cent in 2013 and the time frame for compliance was extended till 2020.
The Act was further amended to extend the debt limit of 80 per cent of GDP till 2030 as the government has failed to stick to the time frame.
“The regular abuses of the Act and amendments to the Act to accommodate fiscal manipulations of relevant regimes resulted in the economic crisis,” an IMF report said.
The non-compliance with the said fiscal rules with the approval of Parliament has compelled the government to introduce the new Act which has no provisions for deviating from such rules.
Along with the implementation of provisions of the new Act, a modern financial management system is to be implemented with the aim of controlling the Sri Lanka budget execution via line ministries and state institutions including statutory boards and corporations.