Fiscal policy is the framework that is implemented by the government in order to influence economic activities via the allocation of resources towards achieving the overall goals of stability and growth. This policy framework is mainly implemented through the Ministry of Finance (MoF) in Sri Lanka, with the traditional policy tools used for this purpose being taxation, government expenditure & borrowing, and debt management. In the meantime, it would also be noted that the financing of the budget and debt management has monetary implications, while the composition of debt instruments, the timing of debt issues and their maturities, has a close relationship with both fiscal and monetary implications. We need to understand that Fiscal policy is broader than taxation. Therefore, perhaps the next post-budget seminar of the Institute should attempt to convey this position so that the popular misconception amongst many Chartered Accountants that “fiscal policy is only about taxation” is removed, thereby encouraging Accountants to focus on fundamental fiscal philosophies and implementation methods at their important pre and post-budget seminars. Needless to say, a greater appreciation of the entirety of the fiscal policies would enable Chartered Accountants to pay more attention to the wide range of subjects encompassing fiscal policy, so that the Accountants’ knowledge and ideas in this field could be regularly harnessed for the benefit of the country at large.
Today, in the aftermath of global financial crisis, the key focus of central banks is both the successful conduct of monetary policy and macroprudential policy, in order to reinforce each other to stabilize economies. In Sri Lanka too, monetary policy formulation, operational framework and strategies adopted, have all evolved in line with the changing structure of the economy, developments in the financial markets, and the availability of data and communication strategies. I do not intend to discuss  BIS central bankers’ speeches  5  these changes in detail here, but would like to highlight that a greater coordination of monetary and fiscal policies would become even more crucial in the implementation of monetary policy and achieving macroeconomic stability, in the future than in the past. Another position that should be clear to us is that the need for harmonization between the Central Bank and the Ministry of Finance, is not a virtue that has been suggested recently, but a vital ingredient that had been provided for, since the establishment of the Central Bank, in order to ensure the sound economic management of the country. The recent evolution of our economy Armed with that background, I would now like to proceed to share with you, some instances of harmonization that has taken place in the recent past in our country. However, before I do that, I think it is necessary to first touch upon the recent evolution of our economy in order to set the stage for what would follow.