Sunday, June 4, 2023

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New Financial Management Act to control public finance soon

By: Staff Writer

Colombo (LNW): The Finance Ministry is now strictly managing the Treasury cash flow to meet the recurrent expenditure amidst signs of some stability not by improving the economy, but with several tax increases and subsidy cuts that have further curtailed demand.

On account of these new revenue generation measures and 6 per cent expenditure cuts of ministry budgets, the government is to introduce a Financial Management Act (FMA) aimed at managing public finance and expenditure, a senior Treasury official disclosed.

With the expected tax adjustments, the Government is expecting a total income of Rs. 173 billion, but for the essential recurrent expenditure alone it requires Rs. 196 billion, resulting in a deficit of Rs. 23 billion for the month of March .

State salaries cost Rs.87.4 billion; pensions and income supplements (Samurdhi programme) were Rs.29.5 billion while other expenses were Rs. 10.8 billion.

The amount needed to service debts in March is Rs. 508 billion. Debt service was Rs 377.6 billion for January 2023 which has to be covered with borrowings from Treasury bills, bonds and a Central Bank provisional advance of Rs.100 billion, he revealed.

He said that the relevant bill is being finalized with the aim of improving the responsible fiscal management process when dealing with public finances and to take substantial decisions based on efficient resource utilization.

The FMA 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, he pointed out.

The new Act will provide provisions to introduce reforms and modernize the accounting and reporting standards and making public sector accountability as a mandatory requirement.

The new FMA is to be formulated in accordance with international standards in the implementation of national policies, strengthening physical sustainability and credibility, and providing an accurate and reliable perspective of the nation’s public finance, he added.

In a bid to bring in much needed fiscal discipline, the Government will introduce a new Public Financial Management Act (FMA) equipped with binding fiscal rules, which is set to come into effect with the budget 2025.

Although, the existing Financial Management Regulatory Act) has been in place for nearly three decades, Cabinet Spokesperson Minister Bandula Gunawardana pointed out that successive governments have never complied with the fiscal targets stipulated in the Act, which ultimately resulted in the current economic crisis.

The proposed FMA is set to include measures when the government could deviate from fiscal rules under extreme conditions in order to bring the public finances back to compliance.

“The Act provides for non-compliance with State’s financial rules only with the approval of parliament in extraordinary cases. However, the Act does not include provisions for deviating from those terms.

The Act does not specify the measures to be taken in the event that the set goals cannot be met in accordance with the provisions of the Act,” the Government Information Department said.

The proposed FMA is also a key condition of the International Monetary Fund’s Extended Fund Facility.

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