Legal issues cloud funding for local bodies
The release of funds to Sri Lanka’s local government bodies, while constitutionally envisioned, remains subject to the discretionary powers of the central government—raising questions about the legal status of such financial flows and whether the Finance Ministry can lawfully withhold them.
Under Sri Lanka’s system of devolution, the 13th Amendment to the Constitution offers devolution of power to Provincial Councils and to local institutions like Municipal Councils, Urban Councils, and Pradeshiya Sabhas.
They are to a great extent reliant on central government appropriations, conveyed mainly by means of Provincial Councils, in order to carry out significant grassroots functions.
In Sri Lanka’s 2025 national budget, the Ministry of Public Administration, Home Affairs, Provincial Councils and Local Government—which oversees local government bodies—has been allocated Rs.81.24 billion.
This funding supports the operations of 341 local authorities, including 29 Municipal Councils, 36 Urban Councils, and 276 Pradeshiya Sabhas
Even though the local government authorities are to be given financial aid, there is no legal provision that necessitates the ministry of finance to effect such a release, a former Treasury secretary told The Sunday Times Business.
Rather, the Finance Commission established under Article 154R of the Constitution makes recommendations for fund allocations to provinces and local governments based on developmental needs and fiscal capacity, he said. These are advisory and not binding recommendations, he explained.
The legal ambiguity gives the ministry significant administrative leeway to determine when and how money is released—even after budgetary allocations are endorsed by Parliament. Technically, the Ministry cannot cancel a Parliament-approved budget line but can delay or limit disbursements, citing policy or fiscal reasons, says a Constitutional lawyer.
Historical precedents confirm this view. In 2019, the capital expenditure recommended by the Finance Commission was just 34 per cent actually transferred to local bodies, indicative of the disparity between sanctioned budgets and transfer reality.
These shortcomings have continued in more recent years, mainly in economic crisis periods and during political instability. This is further amplified by the loans to the local authorities provided via Local Loans and Development Fund (LLDF), a statutory body under the Ministry of Public Administration.
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