Aug 22, Colombo: 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), ADB announced.

An ADB release said the Japan Special Fund, through ADB, will provide a grant of $300,000 to help the government 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.

ADB said 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, the ADB said public expenditure as a share of GDP has not stabilized citing the interest payments on the country’s large national debt and the subsidies designed to insulate the population from the impact of sharp international increases in the prices of food and other items as the reasons.

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.