17 November 2023 12:00 am Views - 134
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Mahinda Siriwardana
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In order to prevent the potential reversal of the progress achieved on the fiscal front and solidify the reforms implemented since last year, a string of new legislation is being drafted and some in their final stages before proceeding to parliament for approval, a top government official said.
Sri Lanka is well-known for frequent policy reversals, and according to some, with critics pointing to the country’s 17 engagements with the IMF, including the latest one, is a clear testament to this self-destructive pattern.
The incumbent Treasury Secretary Mahinda Siriwardana this week stressed that Sri Lanka can no longer afford to tread on that path, as it would result in the country reverting to the unprecedent conditions experienced 12-18 months ago, marked by severe economic and social challenges.
To prevent a recurrence, the Finance Ministry is expected to introduce a series of new legislations, with some expected as early as next year. This proactive approach aims to safeguard the progress achieved in the country’s fiscal sector, ensuring that no government can reverse the progress made.
For instance, Siriwardana said the Public Finance Management Bill, designed to establish the legal framework for the ongoing fiscal reforms, is currently in the advanced stages of drafting and is expected to undergo parliamentary approval by early next year.
“This includes robust fiscal rules, enhanced discipline on budgetary processes, developing medium term fiscal framework, improving transparency, and clear oversight on budget execution,” Siriwardana told a post budget webinar organised by the Centre for Banking Studies of the Central Bank this week.
A few months ago, a new Monetary Law Act was enacted, curtailing the powers of the Central Bank to extend liquidity support to the government except in exceptional circumstances, such as during a pandemic or war.
Analysing the budget for 2024, many experts pointed out the overly ambitious revenue targets presented in parliament earlier this week. The projections anticipate a 45 percent increase from last year, despite the absence of substantial revenue-enhancing proposals, except for the proposed 3 percent increase in the Value Added Tax effective January 1.
Under these circumstances, if the government fails to meet the revenue targets agreed with the International Monetary Fund (IMF) as many local experts are predicting, they will have nothing but to raise more funds from the domestic market by way of issuing bills and bonds, putting pressure on interest rates or else would have to resort to further hike taxes, both disastrous for an economy, which badly needs growth.
Siriwardana also mentioned that in addition to the Public Finance Management Bill, several other pieces of legislation, including the Public Debt Management Law, Procurement Law, SOE Law, Public-Private Partnership Law, among others, are expected to be introduced to solidify the fiscal reforms. However, in the same vein, he emphasised that legislation alone wouldn’t ensure a meaningful change in fiscal management in the country. He highlighted the need for collaborative efforts from all stakeholders in the society, including legislators, bureaucrats, academia, and civil society, to bring about a lasting change.