The Fiscal Management (Responsibility) Act No.3 of 2003 was formulated to make arrangements to facilitate public scrutiny of the implementation of the Government’s fiscal policy. It states that the Government’s financial strategy should be based on a responsible fiscal management policy.
It envisages reducing the Government’s debt to prudent levels by ensuring that the budget deficit does not exceed five percent of the estimated Gross Domestic Product (GDP) at the end of 2006 and that these levels are maintained thereafter. Under this it was expected that the financial risks faced by the Government will be prudently managed by taking into account the changing economic conditions and the use of expenditure policies so that the Government’s debt does not rise to excessive levels. The Fiscal Management (Responsibility) Act No. 3 of 2003 was proposed to provide support for formal and proper financial management through this Act.
Under that, it was seen as particularly important to apply policies related to expenditure and taxation so that future tax rates can be maintained at reasonable levels of stability. It also contains an assurance that the collateral given as a percentage of the GDP for the current fiscal year and the sum of the two previous fiscal years will not exceed 4.5 percent per annum.
One of the key articles in the Act it that it assures that the total liabilities of the Government at the end of the financial year commencing on January 1, 2006 (including external debt calculated at the then prevailing exchange rates) shall not exceed 85 percent of the estimated GDP for that financial year and ensuring that the total liabilities of the Government at the end of the financial year commencing on 1 January 2013 (including external debt calculated at the then prevailing exchange rate) do not exceed 60 percent of the estimated GDP for that financial year.
It is evident that the recommendation has been made for a developing country with a clear vision for the country’s future.
As defined in this Act under the Statement on Financial Strategy, on the date set for the Second Reading of the Appropriation Bill in Parliament each year, the Minister in charge of Finance shall make arrangements to publicise the Government’s statement to the public and present it before Parliament. It is stated that special information related to the next financial year and the following two financial years should be included in the report on the budget economy and financial situation.
Accordingly, under the contents of the report on the budget economy and monetary situation:
(a) Estimates relating to Gross Domestic Product;
(b) Estimates relating to consumer prices;
(c) Estimates relating to employment and unemployment;
(d) Estimates relating to the current account position of Balance of Payment
(e) Estimates relating to income and expenditure;
(f) Estimates relating to loans taken by the Government and all such estimates shall state the basis, economic or otherwise, used in preparing the estimates.
It should also contain a statement related to the sensitivity of those estimates to possible changes in the economic or other basis used in preparing such estimates.
In addition to this, the necessity of compiling a report on the final Budget status for a financial year has also been included in the Act.
(a) A statement of the estimated expenditure and the expenditure actually incurred for that year;
(b) A statement of estimated income and actual income for that year;
(c) A statement of estimated cash flow and actual cash flow for the year;
(d) A statement of estimated borrowings and actual borrowings for the year;
(e) Other statements necessary to adequately reflect the financial position of the Government at the end of that financial year.
Accordingly, if there is any shortfall in the estimated income or cash flow, it should be included in borrowings or if there is a surplus, it should be included in the final Budget report thus ensuring transparency in the matters.
In addition to this, another very specific point is the statement related to the report on the pre-election budget situation mentioned under article 16.
Under that, within three weeks of the publication of a declaration or decree ordering a General Election (GE) to elect Members of Parliament (MPs), the Secretary of the Ministry of Finance shall issue to the public a report on the state of the pre-election budget containing information on the state of the country’s finances.
Also, within two weeks from the day the new Parliament meets for the first time, the minister shall make arrangements to place a copy of the report referred to in sub-section (1) before Parliament.
It also states that the following information for the current financial year should be included in every report on the pre-election Budget situation.
Accordingly, among the contents of the report on the pre-election Budget situation, the estimates of revenue and expenditure as well as an estimate of the Government’s debt should also be included.
It also clearly states the economic factors used in preparing the estimates. It clearly states that attention should be paid to the factors that significantly affect the monetary situation. A prepared statement, to the extent practicable, of quantified risks such as
(I) Contingent liabilities including guarantees given by the Government under any Act;
(II) Publicly published proposals to be spent on by the Government, not included in the estimates referred to in paragraph (a) above;
(III) Ongoing Government projects
(e) Such other information as may be necessary to fairly reflect the financial position as at the date of such report.
(2) Any decision of the Government having a significant effect on the financial position shall, subject to the provisions of sub-section (3) to the fullest extent possible, be included in the information in the report on the pre-election Budget position.
(3) Disclosure of any information, in the written opinion of the Minister -
(a) Prejudicial to national security;
12 (b) where Sri Lanka is put at a substantial disadvantage in the course of litigation, litigation or commercial affairs;
The clarifications under the Fiscal Management (Responsibility) Act No. 3 of 2003 have also been made in connection with the budgeting related to the elections.
Accordingly, it is stated that nothing contained in this section should be read and understood as saying that certain information should be included in the report on the pre-election budget situation.
It states in particular, in the event that any information to be included in a report on the pre-election budget status remains unchanged from the information included in that matter in a report on the economic and financial status of the previous budget or a report on the financial status of the budget in the middle of the year, that information shall be included in one of those two reports or that the information contained in both of those reports remains unchanged, should be mentioned in the report on the pre-election budget situation.
Accordingly, the Minister should provide the information to prepare the report on the pre-election budget situation.
It allows for the Government to borrow money from the Central Bank of Sri Lanka (CBSL) as an advance to temporarily cover the surplus of cash inputs due in a certain fiscal year.
However, every such advance shall be repaid within six months from the date of its receipt and the aggregate of such advances in arrears at any time in any financial year shall not exceed ten per cent of the estimated revenue of the Government for that financial year.
It is evident from the manner the Act has been prepared that it has sought to balance the Budget to ensure that the economy of the country does not collapse at any point.
It is also indicated that nothing contained in this section prohibits the CBSL from contributing to the initial issues of the Government’s Treasury Bills (TBs). It is stated in this Act that all statements and reports mentioned in the Act must be prepared in accordance with the best practices of accounting methods related to Public Sector accounts and the reports and statements must conform to accepted accounting standards.
Accordingly, it is clear that the Fiscal Management (Responsibility) Act No. 3 of 2003 is not another Act or a Gazette notification but a major financial instrument capable of handling the entire economy of this country. It is therefore truly unfortunate that it has not been implemented since due to the wrong advice offered by certain officials and economists.