Non-implementation of 2003 Fiscal Management Act caused economic crisis - Dr. Bandula Gunawardena | Sunday Observer

Non-implementation of 2003 Fiscal Management Act caused economic crisis - Dr. Bandula Gunawardena

5 February, 2023

If we do not reach an agreement with the International Monetary Fund (IMF) at this juncture and formulate a plan to service our debt, the country’s economy will not be sustainable even in the short term. This will render us unsuited to conduct any international agreements. Therefore we must take the necessary steps to prevent this.

As mentioned by the IMF previously any support offered by the IMF will be strictly based on conditions proposed as Sri Lanka has continuously failed to increase income and reduce expenditure.

It has been noted that we must demonstrate our commitment to abide by them as this economic crisis was a long time in the making, Transport, Highways and Media Minister Dr. Bandula Gunawardena told the Sunday Observer.

“If I am, to be honest, the crisis intensified in 2001. The result was that the Sri Lankan economy took a -1.4 downturn at the time.

When the current President Ranil Wickremesinghe was appointed as Prime Minister back then under the leadership of President Chandrika Bandaranaike Kumaratunga, I was appointed as the Cabinet Minister of Rural Affairs and the Deputy Minister of Finance.

At the time the IMF and other financial experts called on the Government to formulate finance laws to prevent the country from going down a path of destruction.

Accordingly, the relevant act was presented to Parliament as the Fiscal Management (Responsibility) Bill in 2003. The proposed act had three salient points,” Minister Dr. Gunawardena said.

He added: “The first was to reduce the budget deficit by 5 per cent of the GDP by 2006 and that the budget deficit should be reduced by more than 5 per cent in all subsequent years. This was passed as a law in Parliament.

The second was that by the year 2013, the total debt burden of the country should be reduced to 65 per cent of the GDP. It said it should now exceed over 65 percent in the subsequent years. Next, it said government guarantees for foreign loans should not exceed 4.5 of the GDP.”

“This Act was passed in Parliament 20 years ago with the very aim of averting an economic crisis like the one we are experiencing today.

However, many Central bank advisors and economic advisors wrongly advised subsequent leaders of the country that this Act is inimical to the nation’s progress.

There were calls to amend this Act and it was thus amended three times.

If these amendments were not carried out, there would most probably have been no economic crisis as according to the original Act, whoever governs the country has to maintain the Budget deficit at 5 percent,” the Minister said.

Moreover, the loans have to be around 65 percent of the GDP.

He said that all those who gave advice to change the salient points of the original Act must be held responsible for the present predicament of the country.

This viewpoint is open for debate.