Vision :

A prosperous Sri Lanka with balanced regional development.

Mission :

Assess the needs and make recommendations with the principles on apportionment of funds for provinces to achieve balanced regional development in the country.

Thrust Areas

  • Need assessment and apportionment of funds on a logical basis to achieve sustainable balanced regional development.
  • Guidance for provincial development planning and plan implementation.
  • Availability of data and information for policy making process
  • Development of human and institutional capacity of the Finance Commission

Constitutional Mandate

The Finance Commission was established, by the 13thAmendment to the Constitution of the Democratic Socialist Republic of Sri Lanka in 1987 to facilitate the process of transfer of resources to the provinces, and provincial development planning. The mandate of the Finance Commission as indicated in Article 154 R (3), (4) and (5) of the 13th Amendment to the Constitution is as follows;

  • The Government shall, on the recommendation of, and in consultation with, the Commission, allocate from the Annual Budget, such funds as are adequate for the purpose of meeting the needs of the provinces.
  • It shall be the duty of the Commission to make recommendation to the President as to –
  1. the principles on which such funds as are granted annually by the Government for the use of provinces should be apportioned between the various provinces; and
  2. any other matter referred to the Commission by the President relating to provincial finance.
  3. The Commission shall formulate such principles with the objective of achieving balanced regional development in the country, and shall accordingly take into account the population, per capita income, the need progressively to reduce social and economic disparities and the need progressively to reduce the differences between the per capita income of each Province and the highest per capita income among the Provinces.Accordingly, the Finance Commission is to apportion such funds between the provinces.

Article 154 R (7) of the Constitution requires that “The President shall cause every recommendation made by the Finance Commission under the above article to be laid before Parliament and shall notify Parliament as to the action taken thereon”.

Appointment of the Finance Commission

Article 154 R (1) defines the composition of the Commission. The President appoints five members to the Commission including two ex-officio members, namely the Governor of the Central Bank and the Secretary to the Treasury. The other three members are appointed to represent the three major communities and they will be persons who have established themselves in the fields of finance, law, administration, business or learning.

The Role of the Finance Commission

Recommendations of the Commission to the President

A major function of the Commission, as specified in the Article 154R (4), is to make recommendations to the President with regard to the principles on which government funds are apportioned between provinces. Key elements that are included in the recommendations are:

  1. Assessment of the provincial needs.
  2. Apportionment of the annually granted funds among provinces.
  3. Division of the total amounts allocated to each province between recurrent and capital needs
  4. Distribution of capital funds between Province Specific Development Grants (PSDG) and Criteria Based Grants (CBG).
  5. Breakdown of PSDG between identified development sectors.
  6. Formulation of principles and guidelines in order to achieve balanced regional development through proper utilization of provincial finance.

The President presents the annual recommendations submitted by the Commission to the Cabinet of Ministers for its approval and then presents it to Parliament. Action taken thereon is notified to Parliament by the President. The Commission then takes action to implement the procedures included in the recommendations submitted to the President during the course of the relevant financial year.

Assessment of Provincial Needs

The assessment of provincial needs is a pre-requisite in the process of allocating and apportioning funds. This includes an assessment of both recurrent and capital needs. When assessing recurrent needs, the Commission ensures the calculation of actual living cadre and new recruitment for the payment of salaries and allowances and the calculation of expenditure for the officers to provide quality service delivery in a cost-effective manner. The Commission also assesses the capital needs of the provinces based on the Medium-Term Agency Results Framework and the Annual Development Plans submitted by the provinces.

In this assessment of provincial recurrent and capital needs, the Commission is engaged in a comprehensive process which includes developing and updating formats, guidelines and instructions to be issued to the provinces.

Negotiation on Provincial Needs with the Government

The Commission analyses the annual requirements submitted by the provinces to ensure that they are in line with the Medium-Term Agency Results Framework for the province prepared according to the National Development Policy Framework of the government. The Commission also takes into consideration the annual allocations of previous years made to the provinces under different sectors. Based on the assessments of needs submitted by each of the provinces, the Commission prepares the total budgetary requirement for all provinces and negotiates with the Department of National Budget on the annual bulk provincial allocation.

The Finance Commission and the Department of National Budget collaborate towards reaching a consensus on the total amount to be allocated and the basis to be used for the apportionment of funds among provinces and sectors. The key steps followed in this process are:

  1. Reviewing the current basis used for allocation of funds to meet the needs of provinces and agreeing on criteria for assessing the needs in respect of the year of assessment.
  2. Agreeing on the number of cadre to be recruited by the line ministries for provinces.
  3. Recommendations for approval of cadre positions to be recruited at provincial level.
  4. Estimate of foreign funded capital flows to provinces in respect of provincial subjects.