Japan and ADB Help Sri Lanka Strengthen Fiscal Reforms

MANILA, PHILIPPINES - Sri Lanka’s efforts to improve its public finances and to strengthen fiscal reforms will get a boost from technical assistance provided by Japan and the Asian Development Bank (ADB).

The Japan Special Fund, through ADB, will provide a grant of $300,000 to help the Government of the Democratic Socialist Republic of Sri Lanka identify measures to contain expenditures and increase revenues in the medium term, in order to support its fiscal consolidation program. The Government will provide the equivalent of $60,000 for the technical assistance project.

“The project aims to help reduce poverty by supporting sustainable fiscal management and good governance,” said Bruno Carrasco, Principal Economist for the Financial Sector of ADB’s South Asia Department.

Under its Fiscal Management Reform Program, supported by ADB, the Government has made significant strides in modernizing its revenue operations. The three and a half year program, which ended in June 2008, helped boost revenue collection and reduce the country’s fiscal deficit from 8.2% of gross domestic product (GDP) in 2004 to 7.7% in 2007. The Government is targeting a fiscal deficit of 5% of GDP by 2010.

However, public expenditure as a share of GDP has not stabilized. Interest payments on the country’s large national debt continue to absorb a significant share of spending, while Government subsidies designed to insulate the population from the impact of sharp international increases in the prices of food and other items provide a further hurdle.

To help address these concerns, the project will review public spending in three target areas – agriculture, education and health – in order to identify unproductive and duplicate spending in the sectors, which account for the bulk of Government expenditure. It will also help the Ministry of Finance and Planning find ways to increase the effectiveness of its public spending.

Other elements will include a blueprint for streamlining revenue administration at two selected provincial councils; a proposal for deepening reforms in the Government’s Treasury Fund Transfer System; and a plan to establish a training facility that will help develop capacity in the area of public fiscal management.

“Strong fiscal management ultimately supports the development of a sustainable public service delivery mechanism that helps improve social welfare, which in turn helps the poor,” said Mr. Carrasco.