The Hon. Nishantha Jayaweera - Deputy Minister of Economic Development

¶ 01 Hon. Speaker, I reply on behalf of the Minister of Finance. The Hon. Leader of the Opposition has raised a timely question.

¶ 02 01. Yes. Sri Lanka’s macroeconomic management rests on two main pillars: fiscal policy and monetary policy. Fiscal policy manages government revenue, expenditure, debt, and public financial management, while monetary policy maintains price stability, stability of the financial system, and manages money supply for economic activity.

¶ 03 02. Fiscal policy is primarily handled by the Ministry of Finance. Its instruments include: - Taxation - Government expenditure - Borrowing - Subsidies and transfers

¶ 04 Monetary policy is handled by the Central Bank of Sri Lanka. Its instruments include: - Overnight policy interest rates - Open market operations - Statutory Reserve Ratio - Liquidity management - Exchange rate policy

¶ 05 03. Engagements and agreements with international financial institutions such as the IMF, World Bank, and ADB provide technical, financial, and policy support to Sri Lanka’s economic reform process. These relationships support stabilization and reforms through financing, technical expertise, and policy guidance. Notably, the 2023 IMF Extended Fund Facility focuses on strengthening revenue-based fiscal consolidation, enhancing social safety nets, restructuring unsustainable debt, ensuring price stability, rebuilding reserves, safeguarding financial sector stability, improving governance and reducing corruption risks, and advancing structural reforms to support long-term growth—ultimately to restore macroeconomic stability.

¶ 06 Additionally, the fiscal policy implementation within the broader reform framework supported by international institutions reflects fulfillment of IMF programme requirements, including allocating about 0.7 percent of GDP for social protection via the Aswasuma programme to better target and protect vulnerable groups. Under World Bank-supported Development Policy Operations, key reforms to enhance public sector transparency and policy credibility are underway, contributing to macroeconomic stability and sustainable development.

¶ 07 However, final responsibility for national policy decisions lies with the Government of Sri Lanka; these institutions act as partners providing advice and support.

¶ 08 04. Within the Government’s framework, fiscal and monetary policies are designed to function in a coordinated and mutually consistent manner to ensure macro stability and sustainable growth. Under the Central Bank of Sri Lanka Act, No. 16 of 2023, a formal Coordination Council has been established to strengthen policy coordination among fiscal, monetary, and financial sectors.

¶ 09 The aim of fiscal policy is to raise public revenue sustainably, manage expenditure, ensure debt sustainability, and allocate public resources efficiently; monetary policy focuses on price stability and maintaining the resilience of the financial system. Together, these are expected to promote investment, employment, and improvements in living standards.

¶ 10 05. Key obstacles and risks include: - Elevated public debt and high debt service costs - Global geopolitical tensions such as the Middle East crisis, leading to uncertainty, fuel and commodity price volatility, and domestic price pressures - Persistently high inflationary tendencies - International trade risks - Fiscal pressures from state-owned enterprises - The need for adequate budget allocations for poverty alleviation and social protection

¶ 11 06. The Government’s measures include: - Strengthening tax administration to reduce evasion, broaden the tax base and net, and strengthen revenue collection - Rationalizing tax exemptions to allow only rules-based relief - Improving efficiency in public expenditure management - Debt restructuring - SOE reforms - Strengthening social protection programmes - Building an investment-friendly environment - Expanding digital technology across government - Advancing anti-corruption mechanisms - Promoting exports and foreign exchange earnings

¶ 12 Under Section 51 of the Public Finance Management Act, the Minister of Finance must, within six months of the end of each financial year, publish a Final Budget Position Report with an assessment of fiscal performance, to Parliament and the public. Accordingly, the report for 2025, including performance of the fiscal sector and the broader economy, was published on 1 June 2026 on the Ministry of Finance website.

¶ 13 Regarding relief: - The Aswasuma social protection programme - Subsidy and concessional credit schemes for farmers - Credit schemes and facilities for MSMEs - Relief for people affected by the “Ditva” cyclone and the Middle East crisis - Maintaining free education and free healthcare despite economic difficulties - Market interventions where necessary to contain the cost of living

¶ 14 07. To further strengthen parliamentary oversight and public accountability in implementing fiscal and monetary policies, steps include: - Implementing the Public Debt Management Act, No. 44 of 2024 - Publishing the Fiscal Strategy Statement and the Fiscal Risk Statement - Publishing the Final Budget Position Report and other fiscal reports, including mid-year fiscal position, budget, and economic and financial updates - Oversight through COPA and COPE - Strengthening reporting on public debt and SOEs - Publishing a Citizens’ Budget to improve public understanding

¶ 15 Ultimately, the objective of all these measures is long-term macroeconomic stability, debt sustainability, investment promotion, and improved living standards.