In a sweeping financial reform initiative aimed at strengthening transparency and fiscal discipline, the Government has initiated a comprehensive review of non-statutory funds operated by ministries and public institutions.
This effort, aligned with the newly enacted Public Financial Management (PFM) Act No.44 of 2024, marks a significant shift in the country’s approach to managing public resources and reinforces its commitment to responsible governance.
According to a senior official at the Ministry of Finance, who wished to remain anonymous, the review is being conducted under the broad umbrella of a national public financial management reform agenda. This agenda has been designed not only to streamline public sector spending and improve accountability, but also to eliminate financial inefficiencies and irregularities caused by the unchecked proliferation of off-budget and loosely regulated funds.
To guide this process, the Treasury issued Public Finance Circular No.01/2025 on 11 April. The circular mandates all ministries, departments, statutory boards, State corporations, universities, and special expenditure units to take immediate steps to regularise or wind up any non-statutory funds currently under their purview.
This instruction reiterates the provisions under Section 39 of the PFM Act, which clearly states that all non-statutory funds must be either converted into statutory funds or dissolved within one year of the act’s commencement – by 7 August.
These non-statutory funds, which have historically operated with varying degrees of oversight, are now under strict scrutiny. During the interim period leading up to the compliance deadline, institutions are expected to manage the funds strictly in accordance with their originally stated objectives.
Heads of institutions are also required to formally notify the secretary of their respective line ministries about such funds and to initiate the prescribed procedures – either for their dissolution or for transformation into statutory entities – under the guidance of the Treasury.
Funds to be evaluated on merit
The Ministry of Finance has assured that the process will be carried out in a structured, transparent, and consultative manner.
The senior official of the Ministry of Finance explained that no arbitrary decisions would be made, with every fund to be evaluated on its merits.
“If a fund is deemed essential and serves a valid and ongoing public interest, it can be converted into a statutory fund through new legislation. If not, it will be dissolved and its resources will be absorbed into the Consolidated Fund. This is not about eliminating funds for the sake of it; it’s about ensuring financial governance and accountability,” the official noted.
Importantly, the ministry clarified that funds composed of employee contributions – such as the Employees’ Provident Fund (EPF), the Employees’ Trust Fund (ETF), and welfare funds – were exempt from this review process. These funds fall under a separate regulatory framework and are not subject to the provisions of Section 39 of the PFM Act.
The present initiative builds upon earlier reforms laid out in Public Finance Circular No.04/2024, issued on 6 November 2024, which provided initial guidance on identifying and categorising both statutory and non-statutory funds. That circular set the stage for the more detailed and mandatory actions now required under Circular No.01/2025.
Assessing funds
In support of the ongoing review, as reliably learnt by The Sunday Morning, the Ministry of Finance has established a dedicated committee tasked with evaluating the status of all public funds across the Government sector. This committee has already completed a preliminary assessment of 210 statutory and non-statutory funds, and has submitted its initial findings to the Treasury.
According to these findings, 105 of the assessed funds have been classified as public funds and 21 have been deemed unfeasible for continued operation. Meanwhile, 12 others have been transferred under the direct oversight of the Department of National Budget.
It is also reported that 13 specific funds have been earmarked for closure. These include the Botanical Gardens Trust Fund, Road Maintenance Trust Fund, and Vehicular Emission Test Trust Fund.
According to officials, the rationale for their closure stems from duplications of function, lack of legal underpinning, or inefficient use of public monies. By absorbing their assets into the Consolidated Fund, the Government aims to centralise control over public resources and improve the efficiency of expenditure.
Further policy deliberations are expected on 10 highly impacted funds that require a more nuanced approach, due to their complexity, size, or socioeconomic implications. For these funds, the ministry is conducting additional consultations with relevant institutions and stakeholders to determine the most appropriate course of action.
These decisions are likely to be taken in phases, with careful consideration given to legal and operational ramifications.
Institutions are required to submit regular progress reports to the Department of State Finance, which is tasked with monitoring the implementation of the circular’s directives. These progress updates are essential for maintaining oversight and ensuring timely compliance. The Ministry of Finance expects that, through this continuous monitoring mechanism, bottlenecks and challenges can be identified early and addressed efficiently.
Aligning with international best practices
This reform effort has not gone unnoticed by governance experts, civil society organisations, and development partners. Many have welcomed the move as a much-needed correction to years of ad hoc financial management practices.
The existence of numerous non-statutory funds has long been a concern, given that some operated with limited transparency, lacked legislative oversight, and were often outside the scope of audit by the Auditor General’s Department.
By centralising control through the Consolidated Fund and enforcing clear legal structures for the retention of essential funds, the Government is aiming to restore credibility to its public finance system. At the same time, institutions will be able to focus more on their core mandates without the distraction or administrative burden of managing side funds.
This reform also aligns Sri Lanka’s public finance framework more closely with international best practices. Many global institutions, including the International Monetary Fund (IMF) and World Bank, have previously recommended that Sri Lanka undertake such consolidation to reduce fiscal fragmentation and enhance macroeconomic management.
Hopes of a smooth transition
Looking ahead, the Government plans to finalise the fund consolidation process by 31 July – just ahead of the 7 August deadline mandated under the PFM Act. A final report on the status of the reform is expected before this deadline, which will provide a comprehensive picture of compliance levels, outstanding issues, and legal reforms needed for full implementation.
While challenges are anticipated – especially in coordinating across multiple institutions with varied mandates – the Ministry of Finance remains confident that the structured, consultative approach will allow for a smooth transition.
As Sri Lanka confronts broader economic and fiscal challenges, this initiative represents a crucial step towards ensuring long-term financial sustainability and public trust in how the nation’s resources are managed.
Against such a backdrop, when contacted, Ministry of Public Administration, Provincial Councils, and Local Government Secretary S. Aloka Bandara noted that the response from institutions would be a key determinant in how the reform would proceed.
“Our ministry is compiling and submitting information on all funds under our purview. Other ministries and institutions are responsible for doing the same. While we are not mandated to evaluate the employee-related impacts of these changes, any such concerns will be addressed through proper legal mechanisms,” he stated.