•  A bill for Sri Lanka’s proposed Public Financial Management law has set a 13 percent primary spending limit (expenses before interest) as part of efforts to improve fiscal discipline in the future, Treasury Secretary Mahinda Siriwardana said.
• The law, which sets a 13 percent of GDP spending limit (before interest costs), allows for a 2 percent ‘budget reserve’, according to the draft bill.

The proposed Public Financial Management law in Sri Lanka aims to enhance fiscal discipline by setting a 13 percent primary spending limit of GDP and repealing the breached Fiscal Management Responsibility Act. This landmark legislation, designed to provide a framework for future fiscal management, includes a 2 percent budget reserve and provisions for exceeding the spending limit under specific circumstances such as national emergencies. However, concerns arise over the additional 2.5 percent of GDP spending allowance for the ruling class, possibly earmarked for capital expenditure, amidst a history of high interest bills due to repeated stabilization programs post-civil war and macroeconomic mismanagement.

Sri Lanka's fiscal landscape has been tumultuous, marked by currency crises, high interest bills, and differing macroeconomic ideologies. The bill, while aiming for fiscal prudence, faces skepticism over the allocation of additional spending for the ruling class and historical missteps in fiscal management. Critics highlight a shift towards revenue-based fiscal consolidation and state expansion ideology, diverging from traditional monetary stability approaches. The legislation reflects a broader debate between growth-oriented macroeconomic policies and the imperative for fiscal restraint, encapsulating Sri Lanka's complex journey towards fiscal reform and stability.

Sri Lanka public finance law to limit primary spending at 13-pct GDP: Treasury Secy | Economy Next