Overview
Number of SNGs
-
Municipalities
24 -
Intermediate
41 -
Regional/State
9 -
Total Number of SNGs
341
SNG Expenditure (% of GDP)
-
Total SNG Expenditure
1.63 -
SNG Current Expenditure
1.59 -
SNG Staff Expenditure
1.24 -
SNG Investment
0.04
SNG Expenditure (% of govt. expenditure)
-
SNG Expenditure
8.78 -
SNG Current Expenditure
8.56 -
SNG Staff Expenditure
30.5 -
SNG Investment
1.03
SNG Revenue (% of GDP)
-
SNG Revenue
0.31 -
SNG Tax Revenue
0.2 -
SNG Grants
1.32 -
Other SNG Revenue
0.06
SNG Revenue (% of govt. revenue)
-
SNG Revenue (% of govt. revenue)
3.67 -
SNG Tax Revenue (% of govt. tax revenue)
3.03 -
SNG Grants (% of govt. grants)
N/A -
Other SNG Revenue (% of other govt. evenue)
6.09
GDP = gross domestic product, Govt. = government, SNG = subnational government.
Sources: Central Bank of Sri Lanka. 2022. Annual Report 2022—Fiscal Policy and Government Finance; Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2022. Annual Report—2021.
-
Local Governance System in Sri Lanka
Sri Lanka is a unitary democratic republic with three levels of government: national, provincial, and local. The relationship between the three levels is clearly identified in the 13th Amendment to the Constitution. The central government holds authority over the formation and structure of local authorities as stipulated by the Constitution.1Provincial councils are responsible for the supervision and administration of the local authorities and have legislative power over matters relating to agriculture, health, housing, etc. There are nine second-tier provinces and 341 third-level local governments within this; the 341 consists of 24 municipal councils, 41 urban councils, and 276 Pradeshiya Sabhas (village councils). Local authorities are vested with the power to create by-laws passed with the approval of the Minister and the Parliament or provincial councils.2
Each form of local government functions under its own legislation, namely, the Municipal Council Ordinance, No. 16 of 1947, the Urban Council Ordinance, No. 61 of 1939, and the Pradeshiya Sabha Act, No. 15 of 1987. The broad responsibilities of local government include providing and overseeing community welfare, including functions relating to thoroughfares, public health, and public utility services.3
- 1Government of Sri Lanka, State Ministry of Provincial Councils and Local Government Affairs. 2021. Review of Financial Performance of Local Authorities for the Mid-year 2021.
- 2Central Bank of Sri Lanka. 2021. Annual Report 2021—Fiscal Policy and Government Finance.
- 3Government of Sri Lanka, State Ministry of Provincial Councils and Local Government Affairs. 2021. Review of Financial Performance of Local Authorities for the Mid-year 2021.
Subnational Government Structural Breakdown
Provincial Councils Districts Municipal Councils Urban Councils Pradeshiya Sabhas Total Central 3 4 6 38 48 Eastern 3 3 5 37 45 North Central 2 2 0 25 27 Northwestern 2 1 3 29 33 Northern 5 1 5 28 34 Sabaragamuwa 2 1 3 25 29 Southern 3 3 4 42 49 Uva 2 2 1 25 28 Western 3 7 14 27 48 Total 25 24 41 276 341 Source: Commonwealth Local Government Forum. 2018. Country Profile 2017–2018. The Local Government System in Sri Lanka.
Infrastructure Development Plan of Local Governments
There is no well-defined and comprehensive infrastructure development blueprint in place for local governments. However, local governments carry out infrastructure development projects as per the requirement of their respective areas of authority such as the restoration of rural roads, construction and restoration of irrigation facilities and water supply projects, construction of rural bridges, and development of rural hospitals. These projects are typically funded by central government transfers and foreign grants by institutions such as the World Bank, ADB, JICA, and the United Nations International Children’s Emergency Fund.1
- 1Government of Sri Lanka, State Ministry of Provincial Councils and Local Government Affairs. 2022. Website.
Sectors in which Local Governments can Implement PPPs
Major functions of provincial councils include the implementation of provincial development, health, education, rural development, social welfare, cooperative development, land use and development, and local government oversight. Local authorities are responsible for public health, utility services, and rural roads. Municipal councils, urban councils, and Pradeshiya Sabhas are entrusted with the regulation and control of public health, public utility services, and public thoroughfares, and the protection and promotion of the comfort, convenience, and well-being of the community. While the law does not clearly state the provision for local governments to implement PPPs, facilitation of PPP implementation is promoted among local governments.
Revenues for Local Governments
Revenue for provincial councils come under two categories: (1) transfers by the GOSL under the statute of the Fiscal Policy Circular No.01/2010 and (2) devolved revenue under the statute of the Provincial Council Act, No. 42 of 1987.
Provincial Council Revenue Breakdown
Transfers by the Government Devolved Revenue - Government grants
- Liquor license fees
- Block grants
- Motor vehicle license fees
- Criteria-based grants
- Other license fees
- Development grants
- Stamp duty
- Court fines
- Rent
- Interest
- Other (sales charges)
Sources: Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2022. Budget Estimates—2023, Volume I; Government of Sri Lanka, State Ministry of Provincial Councils and Local Government Affairs. 2022. Financial Performance of Provincial Councils for the second quarter 2021.
Grants given by the central government have different criteria for each category. Government grants are provided based on the recommendation of the Finance Commission to meet the requirements of the provincial councils. Block grants are determined based on the recurrent expenditure and the estimated devolved revenue of that particular provincial council. Criteria-based grants are an apportionment of funds among provinces to ensure balanced development within all provinces and is recommended based on socioeconomic indicators such as population, area, and per capita income. Development grants are provided based on specific priority services identified for each province. There are three broad types of development grants: (1) province specific development, (2) health and education sector development, and (3) other development projects.1
While the local governments have their own revenue streams, this income is insufficient for investment in capital and infrastructure development projects. Local governments are therefore required to approach lending institutions to finance these projects. However, as they are unable to afford higher commercial lending rates, the Local Loan and Development Fund (LLDF) was formed to bridge this financing gap. The LLDF is a statutory body whose sole mandate is to provide loans to local governments at below-market rates, with a focus on infrastructure development.
- 1Government of Sri Lanka, State Ministry of Provincial Councils and Local Government Affairs. 2022. Financial Performance of Provincial Councils for the Second Quarter 2021.
Borrowings by Local Governments
As mentioned above, to bridge the financing gap for capital investments at the local government level, the LLDF was established under the Local Loans and Development Ordinance, No. 22 of 1916 (which went through several amendments and became an Act in 1949, and which subsequently went through several more amendments). Although the LLDF’s original goal was to extend loans to any local authority, it was subsequently revised to specify that loans could solely be provided to individuals or entities to whom a local authority has delegated any of its functions. This is for the purpose of public utility work, including technical assistance, which the local authority or body may be legally authorized to undertake.1The fund functions under the Ministry of Public Administration, Home Affairs, Provincial Councils and Local Government. The loans given by the General Treasury are lent to local governments as per their requests and are charged at an established interest rate. A certain percentage of the interest income earned is retained by the LLDF as income, and this is utilized for granting loans and reinvestments, which further strengthens the fund.
The general criteria for issuing loans under the LLDF include the following:2
- Priority to projects outside the more developed Western Province.
- Projects that are based on local production, and which generate employment for the people of the area.
- The project should help in the GDP growth of the area.
- At least 30% of the project costs should be borne by the customer (i.e., local government).
- The maximum loan amount for a project is SLRs20 million.
- 1Government of Sri Lanka, Ministry of Justice. 1993. Local Loans and Development (Amendment).
- 2Government of Sri Lanka, Ministry of Justice. 1993. Local Loans and Development (Amendment).
Budgetary Allocation to Local Governments
As per the latest central government budget estimates for 2024, the recurrent expenditure of provincial councils is to be SLRs491 billion and capital expenditure to be SLRs36.1 billion. The recurrent expenditure component is expected to be entirely financed by central government transfers and provincial council revenue generation, while ~55% of the capital expenditure component (i.e., SLRs19.8 billion) is expected to be financed through foreign sources.1
- 1Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2023. Budget Estimates 2024—Volume II.
Credit Rating of Local Governments
As local governments do not have independent credit ratings of their own, the credit rating of the central government is taken as a proxy for the credit rating of local governments. Currently, Sri Lanka’s Long-Term Local-Currency Issuer Default Rating stands at “CCC–,” which implies high levels of credit risk, and that default of some kind appears probable. Further, Sri Lanka’s the Long-Term Foreign-Currency Issuer Default Rating stands at “RD” (Restricted Default) and the Country Ceiling at “B–”.1
- 1Fitch Ratings. 2023. Fitch Upgrades Sri Lanka’s Long-term Local-Currency IDR to CCC-