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THE FINANCE COMMISSION
RECOMMENDATION TO H.E. THE PRESIDENT
on
THE APPORTIONMENT BETWEEN THE PROVINCES OF FUNDS TO BE
ALLOCATED FROM THE ANNUAL BUDGET 2012
(In terms of the Article 154R (4) of the Constitution)
January 2012
No.48, Vajira Road
Colombo 04
January 2012
His Excellency Mahinda Rajapakse
President of the Democratic Socialist Republic of Sri Lanka
Presidential Secretariat
Colombo 01
Your Excellency,
The Finance Commission is mandated by the Article 154 R of the 13th
Amendment of the
Constitution of Democratic Socialist Republic of Sri Lanka to submit the recommendation of the
Commission in respect of the apportionment of funds to be allocated from the Annual Budget for
the use of provinces.
I hereby submit the Recommendation of the Finance Commission for the year 2012 to be tabled
in the Parliament.
Yours respectfully,
Ariyaratne Hewage
Chairman
Finance Commission
1
Table of Contents
1. Finance Commission and its Objectives ............................................................................................... 5
1.1 Legal Provisions on Devolution .................................................................................................... 5
1.1.1 Thirteenth Amendment to the Constitution........................................................................... 6
1.1.2 The Provincial Councils Act No 42 of 1987 ......................................................................... 6
1.1.3 Eighteenth Amendment to the Constitution .......................................................................... 7
1.1.4 Legal Basis for Local Authorities ......................................................................................... 7
2. Mechanism of Transferring Funds to the Provinces ............................................................................. 9
2.1 The Block Grant ............................................................................................................................ 9
2.2 The Criteria Based Grant (CBG) ................................................................................................ 10
2.3 The Province Specific Development Grant (PSDG) ................................................................... 11
3. Methodology Used and Factors Considered for Apportionment of Resources .................................. 14
3.1 Resource Apportionment Mechanism among Provinces ............................................................ 17
3.2 Resource Apportionment Mechanism among Sectors ................................................................ 19
4. Provincial Revenue ............................................................................................................................. 21
4.1 Review of Provincial Revenue Performance for 2010 ................................................................ 22
4.2 Provincial Revenue before and after Introducing the New Revenue Sharing System ................ 22
4.3 Basis for Setting Revenue Targets .............................................................................................. 23
4.4 Revenue Forecast for 2012 ......................................................................................................... 24
4.5 Improving Provincial Revenue Collection .................................................................................. 26
4.5.1 Revenue Collection from the Devolved Sources ................................................................ 26
4.5.2 Optimum use of Existing Manpower for Revenue Collection ............................................ 26
4.6 Efficient Utilization of Revenue ................................................................................................. 27
5. Apportionment of Funds to meet the Needs of Provinces for 2012 .................................................... 28
5.1 Estimation of Provincial Needs ................................................................................................... 28
5.1.1 Request on Capital Expenditure Needs ............................................................................... 29
5.1.2 Request on Recurrent Expenditure Needs........................................................................... 29
2
5.2 Assessment of Provincial Needs ................................................................................................. 31
5.3 Apportionment of Funds among Provinces................................................................................. 33
5.3.1 Apportionment of PSDG and CBG for the year 2012 ........................................................ 34
5.3.2 Apportionment of Block Grant for the year 2012 ............................................................... 34
5.3.3 Financing the Local Government Sector ............................................................................. 35
6. Strengthening Provincial Development .............................................................................................. 36
6.1 Aligning with National Policies .................................................................................................. 36
6.2 Reducing Regional Disparities .................................................................................................... 37
6.3 Results Based Management (RBM) Approach ........................................................................... 37
6.4 Results Based Monitoring and Evaluation .................................................................................. 37
6.5 Cost-Effective Construction Technology .................................................................................... 38
6.6 Trilingual Website of the Finance Commission .......................................................................... 38
6.7 Capacity Building of Local Authorities ...................................................................................... 39
6.8 Optimum Cadre for Provinces .................................................................................................... 39
7. Conclusion .......................................................................................................................................... 40
3
List of Tables
Table 1: Allocation and Release of Block Grant 2007 – 2011 ................................................................... 10
Table 2: Allocation and Release of Criteria Based Grant 2007 – 2011 ...................................................... 11
Table 3: Allocation and Release of Province Specific Development Grant 2007 – 2011 .......................... 13
Table 4: Provincial Contribution to National GDP (%) ............................................................................. 14
Table 5: The Progress of Achieving Millennium Development Goal Target 1 by Provincial Level .......... 16
Table 6: Per Capita Income by Province – 2009/10 ................................................................................... 17
Table 7: Provincial Revenue Collection by Source - 2010 ......................................................................... 22
Table 8: Provincial Revenue before and after Introducing the New Revenue Sharing System .................. 23
Table 9: Assessment of Revenue Collection in 2012*................................................................................ 24
Table 10: Assessment of Revenue Collection in 2012 *............................................................................. 25
Table 11: Stamp Duty and Court Fines to be transferred to the Local Authorities in 2012 ........................ 25
Table 12: Transfers of Central Government Revenue to the Provinces – 2012 .......................................... 26
Table 13: Provincial Requests on Capital Needs (PSDG) -2012 ................................................................ 29
Table 14: Provincial Request on Recurrent Expenditure Needs– 2012 ...................................................... 30
Table 15: Provincial Request on Other Recurrent Expenditure Needs– 2012 ........................................... 31
Table 16: Capital Needs 2012 Assessed by the Finance Commission ........................................................ 32
Table 17: Assessed Personal Emoluments of the Provincial Living Cadre – 2012 .................................... 32
Table 18: Assessed Other Recurrent Expenditure for the Provinces – 2012 .............................................. 33
Table 19: Apportionment of Capital Funds – 2012 .................................................................................... 34
Table 20: Block Grant – 2012 ..................................................................................................................... 34
Table 21: Allocation for the Payment of Allowance to Members and Reimbursement of Salaries of Staffs
of Local Authorities – 2012 ........................................................................................................................ 35
4
List of Annexure
Annexure I: Summarized Circular issued by the Finance Commission......................................................... i
Annexure II: provincial revenue sources ……. .............................................................................................. iv
Annexure III: source - wise revenue collection from 2006 – 2010 ............................................................... v
Annexure IV: Formula to sharing the collected total amount of Court Fines .............................................. vi
Annexure V: Results Framework and Results Based Investment Framework (Form GI & GII) ................ xi
5
1. Finance Commission and its Objectives
The Finance Commission (FC) was established by the Thirteenth Amendment to the Constitution of
Democratic Socialist Republic of Sri Lanka in 1987, through which the devolution of power to the
provinces was introduced. Main responsibilities of the Commission are to make recommendations to the
Government and formulate principles, policies and guidelines on the apportionment of funds to the nine
provinces aiming to achieve balanced regional development. The responsibilities entrusted upon the
Finance Commission by Article 154 R (3), (4) and (5) of the Constitution are as follows;
1. 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.
2. It shall be the duty of the Commission to make recommendation to the President as to –
a) 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
b) any other matter refereed 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-
i. the population of each province;
ii. the per capita income of each province;
iii. the need, progressively, to reduce social and economic disparities; and
iv. the need, progressively, to reduce the differences between the per capita income of
each Province and the highest per capita income among 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”.
1.1 Legal Provisions on Devolution
Substantial power transferring changes were introduced to the political and administrative structure with
the introduction of the provincial council system in 1987. The key instruments of devolution of power are
based on a number of pillars of legislation. A summarized reference to this legal framework is given
below;
6
1.1.1 Thirteenth Amendment to the Constitution
Thirteenth Amendment to the Constitution created a provincial setup of devolved governance by
demarcating the areas of legislative, executive and financial authority which has to be exercised by
provincial councils. The subject content of powers between the centre and the provinces is specified in the
three lists given in the Thirteenth Amendment as the Reserved List (powers of the center); the Provincial
List (powers devolved to the provinces) and the Concurrent List (area of shared responsibilities). Further,
the enactment of the Thirteenth Amendment to the Constitution created three distinctive tiers of
governance, i.e. the Central Government, Provincial Councils and Local Authorities.
The list of provincial subjects is extensive and covers subjects such as Education and Educational
Services, Local Government, Provincial Housing and Construction, Roads and Bridges and Ferries,
Social Services and Rehabilitation, Agriculture and Agrarian Services, Rural Development, Health,
Indigenous Medicine, Food Supply and Distribution, Cooperatives, Land, Irrigation, Animal Husbandry,
Entertainment and Sports etc.
The provincial list also includes the sources of revenue to be collected by the provincial councils and
these revenue sources refer to different types of taxes and fees explained in the Chapter 4 of this report. It
is expected that the provincial councils utilize the revenues collected to meet the provincial requirements.
The Government allocates from its annual budget required additional funds to bridge the gaps to meet the
needs of the provinces.
The Thirteenth Amendment to the Constitution sets out the legislative basis for the following;
i. Establishment of Provincial Councils
ii. The appointment of the Governors of Provinces
iii. Membership and tenure of Provincial Councils
iv. The appointment and powers of the Board of Ministers
v. The legislative powers of the Provincial Councils
vi. Alternative arrangements when failures occur in the administrative machinery
vii. The establishment of the High Courts of the Provinces
viii. The establishment of the Finance Commission
1.1.2 The Provincial Councils Act No 42 of 1987
Provincial Councils Act No. 42 of 1987 provides the procedures to be followed by provincial councils in
relation to;
7
i. Membership of Provincial Councils
ii. Meetings and conduct of business in Provincial Councils
iii. Financial procedures of Provincial Councils
iv. Establishment of Provincial Public Service Commission
1.1.3 Eighteenth Amendment to the Constitution
Eighteenth Amendment to the Constitution of Sri Lanka was enacted in September 2010. The Chairman
and members of the Commissions referred to in Schedule 1 under Article 41 A (1) shall be appointed by
the President. In making such appointments, the President shall seek the observations of a Parliamentary
Council established under the same Article. The FC is included in the list of seven Commissions under
the Schedule 1.
1.1.4 Legal Basis for Local Authorities
Local government is the third and lowest tier of the government in Sri Lanka. Local Authorities are
responsible for providing a variety of local public services including roads, sanitation, drains, housing,
libraries, public parks and recreational facilities. All local authorities are represented by elected members.
Local government became a devolved subject of the Provincial councils, under the Thirteenth
Amendment to the Constitution in 1987. Subject of Local Government operates under three legal entities
namely Municipal Councils, Urban Councils and Pradeshiya Sabhas. Currently there are 23 Municipal
Councils, 41 Urban Councils and 271 Pradeshiya Sabhas in Sri Lanka.
Provincial councils are entrusted with power of supervision of Local Authorities including the power of
dissolution. However, the constitutional amendments ensured that local authorities will have powers
vested in them under existing laws as given in the relevant ordinances and acts.
Municipal Councils
Municipal Councils Ordinance No: 16 of 1947 list the powers of a Municipal Council. There are more
than 40 amendments to the Municipal Councils Ordinance. An Urban area can be declared as a Municipal
Council considering such factors as revenue, population, road network, industrialization and
communication.
Urban Councils
Powers of urban councils are specified in Urban Council Ordinance No: 61 of 1939.There are 44
amendments to the Urban Council Ordinance.
8
Duties of Municipal and Urban Councils can be listed in general as given below;
(a). Maintain and cleanse all public streets and open spaces vested in the Council or committed to its
management; (b). Enforce the proper maintenance, cleanliness and repair of all private streets; (c).
Supervise and provide for the growth and development of their area of jurisdiction by planning and
widening of streets, the reservation of open spaces, and the execution of public improvements; (d). Abate
all nuisances; (e). Establish and maintain (subject to the extent of its resources) any public utility service
which is authorized to maintain under this Ordinance and which is required for the welfare, comfort or
convenience of the public; (f). Promote the public health, welfare and convenience, and the development
of sanitation and amenities of the council areas.
Pradeshiya Sabhas
Pradeshiya Sabhas were established by the Pradeshiya Sabha Act No: 15 of 1987 in place of Town
Councils and Village Committees which existed as local authorities previously.
The Pradeshiya Sabhas have powers relating to public health, public utility services and public
thoroughfares and generally with regard to the protection and promotion of the comfort, convenience and
welfare of the people and all amenities within the area.
According to the local authority legislations any local authority is empowered to establish local authority
fund for its financial purposes such as Municipal Councils fund, Urban Council fund and Pradeshiya
Sabha fund. These legislations empower local authorities to take necessary action to ensure that revenue
generation takes place according to the needs of the local authorities.
9
2. Mechanism of Transferring Funds to the Provinces
The Constitution requires adequate funds to be provided to meet the fiscal needs of the provinces, and at
the same time, that such funds be apportioned amongst the provinces in order to achieve balanced
regional development. The FC performs two main functions in this regard;
a. Determine the fiscal needs of the provinces based on the analysis of the needs submitted
by the provinces and on national policy directives and priorities. The Commission
informs such needs to the Government with regard to allocation of funds from the
Annual Budget as are adequate to meet their needs.
b. Apportion such funds among the provinces with the objective of achieving balanced
regional development.
The apportionment of funds allocated from the annual budget should then meet the needs of each
province in order to reduce inter and intra provincial disparities. The process of allocation and
apportionment of funds to the provinces is carried out on the basis of the following grants.
2.1 The Block Grant
This is a grant meant to meet recurrent expenditure needs of provinces for the purpose of sustaining and
improving the service delivery system. Salaries and wages of provincial staff constitute the major
category of recurrent expenditure for the approved cadre by the Management Services Department
(MSD). Accordingly, the assessment of salaries and wages is confined to the actual living cadre within
the approved staffing limit.
The block grant also includes transfers to Local Authorities to meet expenditure with regard to the
reimbursement of allowances of members and salaries and wages of staff. Presently, a larger proportion
of this grant is used for the payment of salaries and wages of the approved cadre while the payment of
allowances for the contracted employees is expected to be met by the collected revenue.
The recommended block grant allocation and release from the year 2007 to 2011 are given in the Table 1.
10
Table 1: Allocation and Release of Block Grant 2007 – 2011
Rs. Million
Allocation Release Allocation Release Allocation Release Allocation Release Allocation Release
Western 10,821 6,982 6,500 6,021 1,923 2,749 6,100 6,100 7,170 8,979
Central 10,285 10,454 12,950 11,937 12,176 12,487 13,000 13,000 13,270 13,697
Southern 11,005 9,491 10,200 9,607 10,298 10,085 10,500 10,500 11,172 11,760
Northern 8,005 6,608 8,100 7,518 8,349 7,963 8,400 8,700 9,153 9,318
Eastern 9,027 7,172 8,500 8,104 9,891 9,421 10,100 10,100 10,473 10,952
North Western12,488 10,885 12,500 11,500 12,294 11,868 12,300 12,299 12,656 13,018
North Central6,073 5,200 6,500 6,068 6,270 6,513 7,300 7,300 7,386 7,596
Uva 7,185 6,373 8,250 7,684 7,907 7,807 8,300 8,300 8,897 8,948
Sabaragamuw
a 8,663 7,577 9,000 8,337 8,893 8,493 9,000 9,000 9,823 10,335
Total 83,552 70,742 82,500 76,773 77,999 77,386 85,000 85,299 90,000 94,602
20112010
Province
2007 2008 2009
Source: Finance Commission and General Treasury
2.2 The Criteria Based Grant (CBG)
The CBG is to meet the capital expenditure for improving the socio-economic condition in the provinces
in a manner that contributes towards reducing regional disparities. The funds provided under this grant are
available to the provinces for discretionary spending on development. However, the provinces are
required to allocate this grant adhering to the directives given by the FC Circular
FC/PSDG&CBG/CIRCULAR/2011/1 dated 26th
July 2011. The Summarized Circular is attached as
Annexure I.
The recommended CBG allocation and release from the year 2007 to 2011 are given in the Table 2.
11
Table 2: Allocation and Release of Criteria Based Grant 2007 – 2011
Rs. Million
Allocation Release Allocation Release Allocation Release Allocation Release Allocation Release
Western 1,053 125 1,000 127 510 375 450 383 400 660
Central 495 150 613 335 446 306 410 308 375 337
Southern 660 150 656 310 426 230 350 298 325 292
Northern 172 150 280 185 332 241 300 255 275 247
Eastern 178 100 370 341 382 197 325 276 250 230
North
Western455 200 525 301 370 272 300 255 300 270
North Central 238 83 279 202 297 137 260 260 275 1,277
Uva 235 210 292 185 373 206 300 255 300 240
Sabaragamuwa429 245 485 317 416 311 380 323 335 301
Total 3,915 1,413 4,500 2,304 3,550 2,276 3,075 2,612 2,835 3,855
20112010Province
2007 2008 2009
Source: Finance Commission and General Treasury
2.3 The Province Specific Development Grant (PSDG)
This grant is mainly expected for financing capital nature development projects paying special attention to
infrastructure development under different devolved subjects. Upon the receipt of provincial development
plans, the FC and respective provincial authorities discussed and agreed to ensure that such plans would
address the provincial needs and that they are within the National Development Policy Framework of the
Government. For each investment, measurable results (output, outcome and impact) need to be identified
in the form of pre-defined indicators and periodical monitoring and evaluation of achievements, on the
basis of such indicators should be carried out. Results based monitoring and evaluation process should be
conducted by the respective provincial authorities and facilitated by the FC.
The PSDG is provided to provinces for the year 2012, under the following four categories;
i. Sectors/ Subjects
ii. Special Projects for Balanced Regional Development
iii. Flexible Allocation
iv. Foreign and locally funded projects designed and agreed at national level
12
i. Sectors/ Subjects
For each sector/ subject, a specific amount is provided from the local funds to undertake capital nature
development activities in the annual development plans, prepared by the provinces. Before the
implementation of such plans, provinces should obtain the concurrence of the FC. The identified sectors/
subjects for providing funds under the PSDG are as follows;
Sectors/ Subjects under the PSDG - 2012
1. Economic Infrastructure
1.1 Roads
1.1.1 Rehabilitation of Provincial Roads
1.1.2 Local Authority Roads
1.1.3 Estate Roads
1.2 Transport
2 Social Infrastructure and Services
2.1 Education
2.2 Health
2.2.1 Western Medicine
2.2.2 Indigenous Medicine
2.2.3 Sports
2.2.4 Local Authority Services and Waste Management
2.3 Probation and Childcare
2.4 Social Services
2.5 Cultural Affairs
3 Production Sector
3.1 Agriculture
3.1.1 Paddy and Other Crops
3.1.2 Livestock
3.1.3 Inland Fisheries
3.1.4 Irrigation
3.2 Rural Development
3.2.1 Rural Infrastructure
3.2.2 Rural Industries
3.2.3 Rural Alternative Energy
3.3 Tourism
13
ii. Special Projects for Balanced Regional Development
A specific amount is provided for special projects under the balanced regional development for
implementing medium scale projects, identified and formulated by provinces aiming at reducing regional
disparities subject to the concurrence of the FC. Such projects are required to be formulated and
implemented, for a period of one to three years.
iii. Flexible Allocation
A particular amount is earmarked under this category for the “gap filling’’ and to attend to urgent
requirements which are not included in the original plan.
iv. Foreign and Locally funded Projects designed and agreed at National Level
Allocations are provided under this category for special projects to be included in the provincial budget
for the projects, designed and agreed at national level. These projects are implemented by using assistance
from bilateral and multilateral donors and local funds.
The recommended allocation under PSDG and release from the year 2007 to 2011 are given in the Table
3.
Table 3: Allocation and Release of Province Specific Development Grant 2007 – 2011
Rs. Million
Allocation Release Allocation Release Allocation Release Allocation Release Allocation Release
Western 2,405 891 2,435 1,050 1,726 1,567 1,755 1,737 1,736 1,380
Central 1,983 966 2,045 1,368 2,572 1,606 2,145 1,895 2,490 1,369
Southern 2,388 912 2,037 1,293 1,727 1,102 1,773 1,656 1,535 1,283
Northern 947 479 1,469 764 1,877 1,946 2,807 2,365 3,068 1,306
Eastern 947 469 1,641 747 4,702 1,202 3,273 1,730 5,079 1,135
North Western1,896 795 2,018 1,332 1,530 1,056 1,633 1,613 1,542 1,265
North Central 1,858 963 1,930 1,222 1,701 1,202 2,350 1,956 2,808 1,141
Uva 1,694 682 1,917 916 2,338 1,173 2,007 1,888 3,169 1,210
Sabaragamuwa 1,968 848 2,008 1,177 2,259 1,143 1,737 1,564 2,028 1,110
Total 16,085 7,005 17,500 9,872 20,431 11,998 19,480 16,403 23,455 11,199
2011
Province
2007 2008 2009 2010
Note: Including Development Projects
Source: Finance Commission and General Treasury
14
3. Methodology Used and Factors Considered for Apportionment of
Resources
The FC is mandated by the Constitution to focus on achieving balanced regional development through a
process of recommending funds considering total population of each province, per capita income and the
need to reduce the differences between the per capita incomes of each province. In measuring the
disparities among provinces, the macro indicators such as Provincial Gross Domestic Product, Poverty
Head Count Index and Per Capita Income have been used. In addition, the FC further improved the
methodology, taking into account the indicators such as Provincial Share of GDP, Average Share of
Economic sectors within Regions, Annual Growth Rate, Population Share and other Socio-Economic
Indicators while aligning with national policies and adhering to changes in economic and social
environment. The concept of “Minimum Level of Wellbeing of the people” has also been given due
consideration in this exercise.
Elaboration of the macro indicators used in this process is given below;
Provincial Gross Domestic Product
Assessment of provincial GDP over a period gives important insights on regional growth and measures to
be adopted in cushioning disparities among provinces. Analysis of provincial GDP also provides an
important benchmark for the assessment of the thrust areas, to initiate balanced regional development.
Therefore, the Commission has taken steps to obtain the support from the Central Bank of Sri Lanka and
the Department of Census and Statistics in providing data for a detailed assessment on sector contribution
to Provincial GDP.
The Table 4 shows the provincial contribution to National GDP (2006 – 2010).
Table 4: Provincial Contribution to National GDP (%)
Province 2006 2007 2008 2009 2010*
Diff.
Between
2006-2010
Western 50.1 46.5 45.4 45.8 45.1 -5.0
Central 8.8 9.6 9.8 9.8 10.0 1.2
Southern 10.0 10.5 10.5 10.5 10.7 0.7
Northern 2.8 2.9 3.2 3.2 3.4 0.6
North Western 9.1 9.9 9.9 9.6 9.4 0.3
North Central 4.0 4.0 4.7 4.6 4.8 0.8
Uva 4.3 4.9 4.5 4.5 4.5 0.2
Sabaragamuwa 6.1 6.4 6.4 6.1 6.3 0.2
Eastern 4.9 5.2 5.6 5.8 5.9 1.0
Total 100 100 100 100 100 Note:* provisional
Source: Central Bank
15
Western province continues to account for nearly half of the provincial contribution to the country’s GDP.
Southern, North-Western, and Central provinces contribute approximately 30% to the GDP. It is noted
that these provinces which comprise of districts with closer links to the Western Province, are able to
facilitate spread effects of economic development into the province and thereby been able to record
higher contributions to the National GDP. Provinces such as Uva, Sabragamuwa and North Central with
approximately 22% of the population of the nation and encompassing 37% of the land mass have only
been able to contribute around 16% to the National GDP. These provinces also have a significant leverage
on agriculture and agro-based economic activities, but have not been able to achieve a significant growth
for over a period of five years in contributing to the National GDP. The Northern and Eastern Provinces
have not recorded satisfactory growth rates due to the non-conducive environment that had prevailed in
these provinces during last three decades. These provinces are expected to record the highest growth rates
in the coming years owing to concerted efforts made by the Government to develop the economy of them.
While the FC continues to focus on improving equity in recommending allocations based on the
prioritized needs of provinces, attention is paid to ensure sustainable development in provinces through
effective management of resources. However, under the existing system, a significant proportion of the
expenditure incurred by the provinces relates to operational/recurrent expenditure, while a relatively
smaller proportion of funds are being invested in the creation of economic and social assets. As a result,
the improvement to the delivery of services to the community, the capacity to promote entrepreneurship,
ability to create new jobs and increase income in the hands of the people have become constrained and
limited.
The FC has recognized these institutional weaknesses that have directly resulted in a setback in regional
growth with low GDP. The FC is now in the process of implementing strategic initiatives and
programmes with the assistance and cooperation of key Central Government agencies to attract new
investments and promote entrepreneual skills by creating an enabling environment to achieve identified
economic results over a specified timeframe. Continuous support and commitment on the part of
appropriate agencies of the Central Government (the public sector) would be required to achieve these
objectives. The private sector is also expected to play a catalytic role in these initiatives.
Poverty Head Count Index
Sri Lanka has made a significant progress on the path of achieving Millennium Development Goals
(MDGs) by 2015. However, the provincial focus on combating poverty should continue as a priority
aspect; and be integrated and made complimentary to the Central Government’s poverty reduction
strategy. Incidence of poverty remains highest in the Eastern Province in comparison to other provinces in
2009/2010. Uva and Northern Provinces are also relatively high in the poverty incidence ranking. It is
16
observed that significant results have been achieved by the poverty reduction strategies implemented by
the Government towards the achievement of Millennium Development Goal 1.
All provinces have shown a progressive reduction in the poverty index during the past 20 year period. The
poverty head count ratio for Sri Lanka, which has declined from 26.1 % in 1990/91 to 8.9 % in 2009/10,
depicted a 66 % decline during this period. Western Province and North Central Province have recorded a
decline in their poverty head count ratios by more than 75 %.
The Table 5 shows the progress recorded by provinces in achieving Target 1 of MDGs.
Table 5: The Progress of Achieving Millennium Development Goal Target 1 by Provincial Level
1990/91 1995/96 2002 2006/07 2009/10
Western 19.1 16.3 10.8 8.2 4.2 9.55
Central 30.7 36.2 25.1 22.3 9.7 15.35
Southern 30.2 32.6 27.8 13.8 9.8 15.1
Northern * * * * 12.8
North Western 25.8 27.7 27.3 14.6 11.3 12.9
North Central 24.5 24.7 21.5 14.2 5.7 12.25
Uva 31.9 46.7 37.2 27.6 13.7 15.95
Sabaragamuwa 31.0 41.7 33.6 24.2 10.6 15.5
Eastern * * * 10.8 14.8
Sri Lanka 26.1 28.8 22.7 15.2 8.9 13.05
Poverty Head Count Index
Survey PeriodProvince
2015 Millenium
Goal Target 1(as
per the PHC)
Note: *Data not available
Source: Household Income & expenditure survey reports of the Department of Census and Statistics
1990/91, 1995/96, 2002, 2006/07, 2009/10
As indicated in the Table 5 inter-province disparities in poverty can be observed; and it can be noted that
there are intra-province disparities too. The most significant intra-provincial disparity is observed in the
Central Province, where the gap between the highest and the lowest Poverty Head Count Index in two
districts namely, Nuwara Eliya (33.8) and Kandy (17.0) is over 16.8 %. The Nuwara Eliya District in the
Central Province, the Monaragala district in the Uva Province and the Ratnapura District in the
Sabaragamuwa province have the highest incidence of poverty among all districts of the country. While
the Colombo District records the lowest incidence of poverty in the island, intra disparity in poverty
between the Kalutara district and Colombo district is 7.6 %, which is fairly insignificant.
In this background, poverty reduction strategies of provinces should focus on pockets of poverty
characterized by socio, geographic, historical and economic differences and address the issues in targeted
manner. The reduction of poverty is a priority area in the investment strategy promoted by the FC. The
Commission makes a concerted effort to sensitize provinces on these issues so that development
proposals compiled by the provinces respond adequately to consider the asymmetric nature of poverty.
17
Per Capita Income
Mean Per Capita Income is commonly used to measure purchasing power of a population. The purchasing
power is an important indicator which covers various aspects; namely poverty, economic development
capacity and standard of living (see table 6 for details). Per capita income in the Western Province in
2009/2010 is the highest (Rs.11, 561) among all provinces of the country. As shown in the Table 6, the
second, third and fourth places are occupied by the North Western, North Central and Sabaragamuwa
provinces respectively. The above mentioned four provinces have recorded Per Capita Income (PCI)
which exceeds Rs. 9,000 which is close to the national average i.e. Rs. 9,104. PCI in all other provinces
except Northern and Eastern provinces is close to the national average. The low per capita income in the
Northern and Eastern provinces may be attributed to the conflict situation existed in the country.
Table 6: Per Capita Income by Province – 2009/10
Province
Mean Per Capita
Income in Rs. –
2009/10
Western 11,561
Central 8,040
Southern 8,035
Northern 5,515
Eastern 5,663
North Western 9,280
North Central 9,132
Uva 7,343
Sabaragamuwa 9,132
Sri Lanka 9,104 Source: Expenditure Survey of the Department of census and statistics 2009/10
3.1 Resource Apportionment Mechanism among Provinces
The FC has introduced an updated formula for the apportionment of funds under Criteria Based Grant
(CBG) and Province Specific Development Grant (PSDG). A brief description of the formula used is
given below.
In this formula, following indicators have been used to analyze the regional economic and social
disparities;
Provincial Share of GDP
Average Share of Economic sectors within Regions
Average Share of Regions within Economic Sectors
Annual Growth Rate
18
Population Share and Per Capita Income by Province
Poverty Index
Social and Economic Indicators
Taking into account the regional economic and social disparities, following weights have been assigned to
the identified indicators in apportioning inter provincial capital funds through PSDG and CBG.
Identified indicators and assigned weights for the apportionment of PSDG among nine provinces are as
follows;
Poverty and Income - 40%
1. Population: Share of population of the province - 14%
2. Per Capita Income: Percentage share of Per capita Income of the province - 08%
3. Poverty: Head Count Poverty Index- percent of the poor of the province - 08%
4. Unemployment: Rate of unemployment of the province - 10%
Heath and Nutrition - 15%
1. Neo-natal mortality rate (per 1000 live births) - 7.5%
2. Low birth weight (per 100 live births) - 7.5%
Education - 15%
1. Student enrolment ratio in grade 1 (Percentage share of the province) - 5%
2. Student learning achievement of grade 4, 8, 9, O/L & A/L - 5%
3. Student survival rate from year 6 to 14 - 5%
Infrastructure - 30%
1. Houses without electricity facilities - 05%
2. Provincial road length: Percentage share of the province (C & D) - 25%
After analyzing the annual data available on the above indicators, each province was assigned a calibrated
weight. Total PDSG was apportioned among nine provinces, based on these weights.
Indicators and weights for the apportionment of CBG are as follows;
1. Population: Share of population of the province - 35%
2. Per capita Income: Percentage share of per capita income of the province - 20%
3. Poverty: Head Count Poverty Index- percentage of poor of the province - 20%
4. Unemployment: Rate of unemployment of the province - 25%
19
Agreed total amount of CBG has been apportioned among nine provinces based on the calculated weights
for each province.
3.2 Resource Apportionment Mechanism among Sectors
PSDG allocation granted to a province has been apportioned among identified development sectors based
on agreed percentages. These percentages were decided after conducting a series of discussions with
Chief Ministers, Chief Secretaries, Deputy Chief Secretaries, Secretaries of Provincial Ministries and
other relevant officers. During the discussions, the FC took into account the requests made by provinces
on development needs. In addition, following facts have been considered in deciding the percentages for
each sector.
i. Decisions arrived at the series of discussions conducted by the FC with the senior officers of
key national ministries and agencies along with the officers of relevant provincial agencies
with regard to national sectoral policies, strategies and targets with a view to aligning the
provincial programmes with national policy framework. The main subject areas covered
during the discussions included Agriculture, Health, Education, Inland Fisheries, Livestock
Development, Tourism, Roads and Probation and Childcare. Major objectives of this
approach were to avoid duplication of work and optimum allocation of resources. At these
meetings, each sector was given specific provincial targets, in addition to performing their
normal activities, in order to ensure that every province contributes considerably to achieve
the set objectives and targets.
ii. Requests of provinces were considered favorably to include estate roads in the PSDG 2012.
In this regard, meetings were conducted with the officials of the Ministry of Plantation
Industries on improvement and rehabilitation of estate roads. At these meetings, it was
decided that the provincial and local government roads run through estates should be
improved using cost effective technology. It was agreed to identify the roads within the
plantation areas by provincial authorities in consultation with the plantation companies and
the Tea Small Holding Development Authority. These institutions were requested to
contribute for the improvement of estate roads by way of providing finance, in-kind
assistance and manpower.
iii. Views and ideas expressed by Hon. Governors of Provinces at the meeting of Governors held
on 17th September 2011. Some Governors were of the view that when allocating resources for
the provinces, all districts within the province should be considered without discrimination to
ensure that all citizens get equal benefits. They pointed out that intra-provincial disparities
20
should also be given attention in allocating resources particularly for the development of
roads and other infrastructure facilities.
iv. Ideas and suggestions presented by Hon. Chief Ministers at the individual meetings with the
Chairman and the Secretary of FC in respect of provincial allocations. They were of the
common view that the provisions under flexible allocations need to be increased, enabling
provincial authorities to provide adequate resources to backward areas. It was also pointed
out that sufficient resources need to be channelled for the Local Authorities with a view to
ensuring efficient service delivery to the people living in less developed areas. They stressed
the necessity of improving common facilities and utility services especially, drinking water,
sanitation, small townships and bus stands as important areas of investment.
v. Suggestions made by the Hon. Minister of Economic Development at the meeting held on
19th September 2011 with the Chairman and Secretary of the FC. At this meeting, it was
decided to provide capital resources mainly for maintenance and rehabilitation of provincial
roads, since construction of new roads and carpeting of C & D roads would be undertaken by
the Ministry of Economic Development. Further, it was agreed to maintain a better co-
ordination between national and provincial agencies in investing funds for the provincial
development programmes to avoid possible duplication of work.
vi. Allocation of funds for special projects which have ripple effects in each province. These
projects should be characterized by higher value addition, income generation, poverty
reduction and employment creation, enabling each province to increase its share of national
GDP, and to reduce inter and intra regional disparities.
vii. Maintenance of minimum well-being of the people in every province for narrowing the
disparities among different income groups. In this exercise, particular attention has been paid
to improve social infrastructure facilities like health, education, drinking water and sanitary
facilities for which public funds need to be provided adequately.
viii. Encouragement of private sector participation and arrangements of Public-Private Partnership
(PPP) for commercially viable projects, while encouraging the public sector to play roles of
facilitator and regulator.
21
4. Provincial Revenue
Provincial revenue sources have been identified under the Ninth Schedule of Thirteenth Amendment to
the Constitution (Para 36.1 to 36.20). Details of provincial revenue sources are given in the Annexure II.
Business Turnover Tax (BTT) was the major revenue source of provincial councils. However, it has been
observed that the operation of the provincial BTT and other similar national taxes resulted in tax on tax.
This has caused a high tax burden particularly, on Small and Medium Enterprises (SME) and consumers.
With a view to avoiding this complicated tax system, the BTT collected by the provinces was abolished
by the National Budget - 2011 presented before the Parliament. In order to supplement the reduction of
revenue collected by the provinces, a special revenue sharing system, was introduced by the National
Budget - 2011.
To implement this policy decision, Secretary to the General Treasury issued the Fiscal Policy Circular
No: 01/2010 on 29th of December, 2010. Accordingly, revenue collected by central authorities such as
Commissioner General of Inland Revenue (CGIR), Director General of Customs (DGC) and
Commissioner General of Motor Traffic (CGMT) should be transferred to the provinces, on the following
basis, with effect from the 01st of January, 2011.
i) 33 1/3% of the Nation Building Tax (NBT)
ii) 100% of Stamp Duty
iii) 70% of Vehicle Registration Fees
The collected revenue from NBT and Stamp Duty should be shared with the provinces according to
following percentages;
Province Ratio
Western 48%
Central 9%
Southern 9%
North Western 9%
Sabaragamuwa 5%
North Central 5%
Uva 5%
Eastern 5%
Northern 5%
In respect of the Vehicle Registration Fees, the existing procedure remained unchanged and the applicable
percentage to share the revenue with the provinces was increased from 60% to 70% with effect from 01st
of January, 2011.
22
4.1 Review of Provincial Revenue Performance for 2010
Motor Vehicle License Fees, Excise Duty, Stamp Duty and Court Fines were some of the sources of
provincial revenue while BTT was the major source up to end of 2010. Table 7 shows the actual
collection of provincial revenue for the year 2010.
Table 7: Provincial Revenue Collection by Source - 2010
(Rs’000)
Province BTT
Motor
Vehicle
license Fees
Excise Duty Stamp Duty Court Fines Others** Total
Western 12,747,890 1,971,072 284,330 4,549,780 596,330 2,591,578 22,740,980
Central 1,682,540 410,635 96,365 481,791 68,208 246,835 2,986,374
Southern 1,632,237 350,636 60,892 501,549 171,456 207,363 2,924,133
Northern* - - - - - 155,194 155,194
North Western 1,136,366 505,145 51,933 671,045 318,866 265,261 2,948,616
North Central 559,008 214,692 19,495 41,118 183,595 152,962 1,170,870
Uva 528,299 122,619 39,883 96,454 81,695 106,534 975,484
Sabaragamuwa 838,537 264,258 38,165 262,891 99,174 201,725 1,704,750
Eastern 459,080 72,215 - 109,690 69,085 189,540 899,610
Total 19,583,957 3,911,272 591,063 6,714,318 1,588,409 4,116,992 36,506,011 Source: Monthly Revenue Reports of provincial councils – 2010
*No provincial revenue collection mechanism available
** Others include rents, interests, examination fees, sale of capital assets, betting tax etc.
As shown in the Table 7, the Western Province is the highest revenue collector and its average
contribution to the total annual provincial revenue is approximately 62%. The average annual contribution
to the total provincial revenue by all other provinces, is nearly 38%. The lowest contributor is the Eastern
Province. BTT is the highest source of revenue among all the sources and its contribution is around 54%.
The average annual contribution to the total provincial revenue by all other revenue sources is
approximately 46% and the Motor Vehicle License fees is the highest contributor among other revenue
sources.
Stamp Duty and Court Fines collected by provinces were annually transferred to the Local Authorities.
Stamp Duty makes the highest contribution among these two revenue sources. Please refer Annexure III
for more details on source - wise revenue collection from 2006 – 2010.
4.2 Provincial Revenue before and after Introducing the New Revenue Sharing
System
Table 8 shows a comparison of BTT collection of 2010 and actual transfers of Central Government
revenue in the year 2011. It is noted that the Western Province is the highest BTT collector in 2010. Its
average contribution to the total annual BTT collection was 65%. The average annual contribution to the
23
total BTT collection by all other provinces was approximately 35%. It is observed that all other provinces
benefited except the Western Province from the newly introduced revenue sharing system. General
Treasury has agreed to transfer additional funds to the provinces if there is any reduction of revenue after
the introduction of new revenue sharing system. Since the revenue of Western Province has been reduced
by 13% under the new system, the Central Government decided to transfer additional Rs. 1,000 million to
the Block Grant of the Western Province to supplement the recurrent expenditure needs in the year 2011.
Table 8: Provincial Revenue before and after Introducing the New Revenue Sharing System
(Rs Million)
4.3 Basis for Setting Revenue Targets
The FC has set revenue collection targets for the devolved revenue sources for the provinces in respect of
every assessment until 2010. However, the previously collected BTT by the provinces was abolished from
2011and instead 33 1/3% of the NBT, 100% of Stamp Duty and 70% of Vehicle Registration Fees were
transferred to the provinces by the Central Government. Under the circumstances, two systems in setting
the revenue targets for the provinces were introduced from 2011. Firstly, the FC sets the revenue targets
for devolved revenue sources of the provinces (Stamp Duty, Court Fines, Motor Vehicle Annual License
fee, Excise Duty etc.) and secondly, the Central Government instructions given in the Fiscal Policy
Circular No: 01/2010 sets the percentages of revenue transfers from the center to the provinces. The total
amount of revenue targets set under the above two systems is deducted from the required recurrent
expenditure needs assessed under the Block Grant to the provinces.
When setting the targets under devolved provincial revenue, the FC reviews the assessment of revenue
collection submitted by the provincial authorities and the past performance of provincial revenue
collection. Transfers of Central Government Revenue to the provinces for the year 2012 have been
forecast based on the following percentages agreed by the FC and the General Treasury.
ProvinceBTT Collection -
2010
Central
Government
Transfers- 2011
Difference
Western 12,747.89 11,072.71 (1,675.18)
Central 1,682.54 2,210.23 527.69
Southern 1,632.24 1,676.56 44.32
Northern - 1,187.02 1,187.02
North Western 1,136.37 2,100.69 964.33
North Central 559.01 1,178.90 619.89
Uva 528.30 1,114.89 586.59
Sabaragamuwa 838.54 1,179.62 341.08
Eastern 459.08 1,020.62 561.54
Total 19,583.96 22,741.24 3,157.28
24
Province Ratio
Western 48%
Central /Southern/ North Western 9%
Sabaragamuwa /North Central/ Uva/
Eastern/ Northern 5%
4.4 Revenue Forecast for 2012
The FC analyzed the provincial performance of actual revenue collection of previous years (before 2010)
and the first six month of 2011 to set the 2012 targets. Thus, the FC set the targets for devolved provincial
revenue sources of all provinces for the year 2012 as Rs.19,308 million. The Table 9 shows the estimated
provincial targets and the assessment of the FC for the year 2012. This includes Stamp Duty and Court
Fines which should be transferred to the relevant Local Authorities.
Table 9: Assessment of Revenue Collection in 2012*
(Rs'000)
Source: Provincial budget estimates 2012 and Finance Commission * Including Stamp Duty and Court Fines
The targets of the FC for 2012 excluding Stamp Duty and Court Fines are Rs 9,485 million. The Table 10
gives the estimated provincial targets and assessment of the FC for the year 2012, excluding Stamp Duty
and Court Fines.
Province
Provincial
Revenue
Estimate
FC Revenue
Target
FC
Revenue
Target as a
%
Western 3,027,292 10,371,000 54
Central 792,000 2,160,000 11
Southern 979,550 1,801,000 9
Northern 164,340 172,000 1
North Western 905,000 2,088,000 11
North Central 355,577 637,000 3
Uva 343,685 536,000 3
Sabaragamuwa 441,108 907,000 5
Eastern 266,790 636,000 3
Total 7,275,342 19,308,000 100
25
Table 10: Assessment of Revenue Collection in 2012 *
(Rs'000)
Source: Provincial budget estimates 2012 and Finance Commission
*Excluding Stamp Duty and Court Fines
The Western Province collects the highest share of provincial revenue compared to other provinces.
Therefore, the Western Province has been given a target of 60% of the total revenue to be collected by all
provinces.
The Table 11 exhibits the amount of Stamp Duty and Court Fines to be transferred to the Local
Authorities from total revenue of Rs 9,823 million.
Table 11: Stamp Duty and Court Fines to be transferred to the Local Authorities in 2012
(Rs'000)
Source: Finance Commission
The General Treasury has allocated Rs. 32,000 million from the centrally collected revenue to the
provinces for the year 2012 in accordance with the Fiscal Policy Circular No: 01/2010. The Table 12
shows Transfers of Central Government revenue to the provinces for the year 2012.
Province Stamp Duty Court Fines Total %
Western 4,952,000 600,000 5,552,000 60
Central 650,000 70,000 720,000 8
Southern 600,000 175,000 775,000 8
Northern - - - -
North Western 795,000 300,000 1,095,000 12
North Central 45,000 174,000 219,000 2
Uva 100,000 74,000 174,000 2
Sabaragamuwa 300,000 100,000 400,000 4
Eastern 260,000 60,000 320,000 3
Total 7,702,000 1,553,000 9,255,000 100
Province
Provincial
Revenue
Estimate
FC Revenue
Target
Revenue Target
as a%
Western 3,027,292 4,819,000 51
Central 792,000 872,000 9
Southern 979,550 1,026,000 11
Northern 164,340 172,000 2
North Western 905,000 993,000 10
North Central 355,577 418,000 4
Uva 343,685 362,000 4
Sabaragamuwa 441,108 507,000 5
Eastern 266,790 316,000 3
Total 7,275,342 9,485,000 100
26
Table 12: Transfers of Central Government Revenue to the Provinces – 2012 (Rs'000)
Province Transfers %
Western 15,360,000 48
Central 2,880,000 9
Southern 2,880,000 9
Northern 1,600,000 5
North Western 2,880,000 9
North Central 1,600,000 5
Uva 1,600,000 5
Sabaragamuwa 1,600,000 5
Eastern 1,600,000 5
Total 32,000,000 100 Source: Finance Commission
4.5 Improving Provincial Revenue Collection
It has been observed that there is a great potential with the provinces to improve revenue collection from
the devolved revenue sources except BTT.
4.5.1 Revenue Collection from the Devolved Sources
Provincial Authorities should explore the possibilities of improving revenue collection according to the
devolved sources as listed from 36.1 to 36.19 of the Ninth Schedule of the Thirteenth Amendment to the
Constitution.
The Provincial Authorities should also introduce innovative approaches of revenue collection from other
revenue sources as given in 36.20 of the Ninth Schedule which reads as follows;
“Other taxation within the province in order to raise revenue for provincial purposes to the extent
permitted by or under any law made by Parliament.”
4.5.2 Optimum use of Existing Manpower for Revenue Collection
There is over 500 staff members attached to provincial revenue departments in all provinces. Since the
abolition of BTT in 2011, the services of these officers are underutilized as they did not give due
consideration to other devolved revenue sources. In addition to the devolved provincial revenue sources,
there are many opportunities of revenue collection at Local Authority level. For example, rates from the
properties have not been properly collected and updated for several years. If presently redundant
manpower of the provincial revenue departments could be utilized for collecting such revenue, total
revenue of local authorities could be increased. Provincial Authorities may consider introducing
appropriate systems to put alternative approaches into practice.
27
4.6 Efficient Utilization of Revenue
It has been observed that, there is surplus of collected revenue used for non–development purposes in
some provinces. It is therefore recommended that such revenue be utilized for productive purposes by the
provincial authorities.
Although, Stamp Duty and Court Fines are expected to be transferred to the local authorities by the
provincial councils, there had been several instances where such revenue was retained with the provincial
councils without transferring. This situation has occurred due to the complication of calculating Court
Fines to be claimed by the respective local authorities. With a view to resolving this issue, the FC was
engaged in a dialogue with the Ministry of Justice. As agreed in the discussions, the FC presented a
formula for sharing the collected total amount of Court Fines among the respective local authorities. It is
recommended that relevant authorities consider adopting this formula. The basic concept on this is given
in Annexure IV.
28
5. Apportionment of Funds to meet the Needs of Provinces for 2012
The FC follows a specific budget time cycle incorporating a wide consultative process with stakeholders
of the Provinces and the Central Government prior to submitting its recommendations to His Excellency
the President on the assessment of provincial needs and apportionment of funds among provinces for the
forthcoming fiscal year. The FC considers following grants and major elements in its recommendation.
i) Recurrent expenditure funded through the Block Grant
ii) Capital expenditure funded through the Provincial Specific Development Grant
(PSDG) and the Criteria Based Grant (CBG). Funds of some foreign funded projects
are also included under PSDG and are directly channeled to the provinces by the
General Treasury.
iii) Criteria used to achieve balanced regional development including macro indicators
such as Provincial Gross Domestic Product, Poverty Head Count Index and Per
Capita Income and in addition, Provincial Share of GDP, Average Share of
Economic sectors within Regions, Provincial Annual Growth Rate, Population Share
and other Socio - Economic Indicators considering the concept of “Minimum Level
of Wellbeing of the people”.
iv) FC guidelines on the utilization of funds by the provinces mainly on the priorities
identified under different sectors providing directives for development investments,
efficient utilization of existing constructions, avoid overlapping and duplications,
inter-sectoral coordination, enhancement of rural economy and optimum resource
distribution.
5.1 Estimation of Provincial Needs
The FC analyses the needs of provinces by taking the following main aspects of provincial plans into
consideration;
a. Maintaining the existing services productively.
b. Improving the efficiency of services.
c. Achieving intended results effectively.
d. Avoiding duplication and wastage.
e. Focusing on priority needs.
29
Provinces were requested to submit their estimates of financial needs in respect of the Financial Year
2012 in accordance with the “Guidelines on Presentation of Request for Finances” issued to provinces by
the FC on 28th February 2011. This included the key elements of the legal framework in assessing
provincial financial requests and required information on capital (PSDG and CBG), recurrent (Block
Grant) and revenue estimates, calendar for the budget process and the schedule for the submission of
financial needs of provinces to the FC.
5.1.1 Request on Capital Expenditure Needs
The Capital Budget is prepared by provinces as a three year medium-term plan based on the Results
Based Management Framework introduced to the provinces by the FC in 2010. Under the Result Based
Management approach, two forms (Form GI and GII) have been introduced for the purpose of submitting
provincial requests on capital needs. These forms are attached in Annexure V.
The requests on capital expenditure for the financial year 2012 as submitted by the provinces are
compiled in the Table 13 below.
Table 13: Provincial Requests on Capital Needs (PSDG) -2012
(Rs'000)
Province Total Estimates %
Western 4,754 15
Central 3,544 11
Southern 3,528 11
Northern 2,888 9
Eastern 2,460 8
North Western 3,256 10
North Central 3,308 11
Uva 3,900 13
Sabaragamuwa 3,398 11
Total 31,036 100 Note: Excluding nationally agreed Foreign and locally funded Projects
Source: Provincial budget estimates-2012
5.1.2 Request on Recurrent Expenditure Needs
Recurrent expenditure accounts for large proportion of the total provincial expenditure and is to meet the
day-to-day expenses of the provinces mainly, the cost of salaries and allowances of employees. In
addition, this expenditure is also used to meet the maintenance requirements of capital assets already
undertaken.
30
Personal emoluments (PE) constitute the major component of recurrent expenditure and they include
salaries and wages, overtime and holiday pay and other allowances of provincial cadre. Other recurrent
expenditure (ORE) includes travelling expenses, supplies, maintenance, contractual services, transfers to
other agencies, grants, subsidies, interest payments and others. The amounts under recurrent expenditure
requested by the provinces for the year 2012 are given in the Table 14.
Table 14: Provincial Request on Recurrent Expenditure Needs– 2012
(Rs’000)
Province
Personal
Emoluments %
Other
Recurrent
Expenditure %
Total
Expenditure
Western 22,877,951 68 10,539,765 32 33,417,716
Central 14,476,704 76 4,512,338 24 18,989,042
Southern 12,972,642 79 3,484,804 21 16,457,446
Northern 9,196,671 75 2,985,577 25 12,182,248
North Western 14,586,717 77 4,247,155 23 18,833,872
North Central 8,538,441 80 2,142,466 20 10,680,907
Uva 9,662,956 73 3,594,476 27 13,257,432
Sabaragamuwa 12,541,470 81 2,982,667 19 15,524,137
Eastern 11,132,006 80 2,749,260 20 13,881,266
Total 115,985,558 76 37,238,508 24 153,224,066 Source: Provincial budget estimates – 2012
Note: Including Local Government Transfers Stamp Duty and Court Fines
Personal emoluments and other recurrent expenditure constitute 76 percent and 24 percent of the recurrent
expenditure respectively. The personal emoluments requested by the provinces include requirements of
current existing cadre as well as the vacant cadre. Other recurrent expenditure comprises the operational
cost, Stamp Duty, Court Fines and reimbursement of salary of the Local Authority cadre. ORE excluding
Local Government transfers, Stamp Duty and Court Fines are given in the Table 15.
31
31
Table 15: Provincial Request on Other Recurrent Expenditure Needs– 2012
(Rs ‘000)
Province Other Recurrent
Expenditure
Western 4,301,484
Central 2,091,307
Southern 2,249,243
Northern 2,164,450
North Western 2,362,303
North Central 1,703,072
Uva 2,530,596
Sabaragamuwa 1,999,545
Eastern 1,764,558
Total 21,166,558
Source: Provincial budget estimates – 2012
Note: Excluding Local Government Transfer Stamp Duty and Court Fines
Percentage of requested ORE excluding local government transfers, stamp duty and court fines, as
indicated in the Table 15 is computed at 18 percent of the personal emoluments of total living and vacant
cadre in the Table 14. Although, ORE appears to be too large in amount, percentage value is
comparatively low compared to PE since it includes vacant cadre as well. However, when these requests
are assessed, the FC considers personal emolument amount only for the living cadre.
Although recurrent expenditure appears to be unproductive and is in the range of 80% of total allocation
such expenditure is directly related to development activities. In this context, it is observed that personnel
who provide services in all sectors, particularly education and health contribute towards achieving the set
targets.
5.2 Assessment of Provincial Needs
The requests on capital and recurrent expenditure submitted by the provinces are carefully reviewed and
assessed by the FC before making recommendations to the Government.
Provincial capital needs submitted in the form of annual development plans are assessed by the FC
keeping in line with its guidelines. Provincial capital needs assessed by FC for 2012, excluding Special
Projects, are given in the Table 16.
32
Table 16: Capital Needs 2012 Assessed by the Finance Commission
(Rs million)
FC
Recommendation %
FC
Recommendation %
Western 4,754 15.3 1,005 14.2
Central 3,544 11.4 912 12.9
Southern 3,528 11.4 865 12.2
Northern 2,888 9.3 675 9.5
North Western 3,256 10.5 712 10.1
North Central 3,308 10.7 585 8.3
Uva 3,900 12.6 750 10.6
Sabaragamuwa 3,398 10.9 824 11.6
Eastern 2,460 7.9 749 10.6
Total 31,036 100 7,077 100.0
Province
PSDG CBG
Source: Finance Commission
Recurrent expenditure is composed of two categories namely, personal emoluments and other recurrent
expenditure. Personal emoluments constitute the expenses needed for the existing cadre of each province
while other recurrent expenditure comprises service delivery charges based on a percentage of the
personal emoluments of each province.
Assessed provincial living cadre and personal emoluments for the year 2012 are given in the Table 17.
Table 17: Assessed Personal Emoluments of the Provincial Living Cadre – 2012
NO Province Living
Cadre %
Personal Emoluments (Rs’000)
Salaries &
wages %
Overtime
&
Holiday
pay
% Other
Allowances % Total (PE) %
1 Western 53,864 18 14,542,555 20 825,578 12 5,395,502 18
20,763,635 19
2 Central 40,274 14 9,473,757 13 1,067,787 15 3,697,401 13
14,238,945 13
3 Southern 35,234 12 8,686,194 12 701,843 10 3,475,024 12
12,863,061 12
4 Northern 23,814 8 5,309,886 7 507,976 7 2,260,120 8
8,077,982 7
5 North Western 38,580 13 9,294,663 13 655,636 9 3,677,089 13
13,627,388 13
6 North Central 20,803 7 4,789,964 7 578,461 8 2,043,863 7
7,412,288 7
7 Uva 26,198 9 5,887,818 8 913,047 13 2,492,095 9
9,292,960 9
8 Sabaragamuwa 27,679 9 7,092,620 10 902,086 13 3,155,084 11
11,149,790 10
9 Eastern 29,743 10 7,164,112 10 906,477 13 3,061,403 10
11,131,992 10
Total 296,189 100 72,241,569
100 7,058,891
100 29,257,581
100 108,558,041 100
Note : Excluding vacant cadre
Source : Provincial budget estimate 2012 and Finance Commission
33
Assessed total living cadre of all provinces is calculated at 296,189 and around Rs: 108,558 million is
estimated to be transferred to the provinces for the purpose of meeting the expenses of their living cadre.
Assessed other recurrent expenditure including local government transfers to the provinces as agreed with
the General Treasury for the year 2012 are illustrated in the Table 18.
Table 18: Assessed Other Recurrent Expenditure for the Provinces – 2012
(Rs’000)
N
o Province
Other Recurrent
Expenditure without Local
Government Transfer
%
Local
Government
Transfer
%
Total Other Recurrent
expenditure with Local
Government Transfer
%
1 Western 4,048,909 22 4,496,846 47 8,545,755 31
2 Central 2,064,647 11
1,206,059 13 3,270,706 12
3 Southern 2,058,090 11
783,469 8 2,841,559 10
4 Northern 1,534,817 8 712,819 7 2,247,636 8
5 North Western 2,180,382 12 711,615 7 2,891,997 10
6 North Central 1,334,212 7
274,329 3 1,608,541 6
7 Uva 1,765,662 10
358,702 4 2,124,364 8
8 Sabaragamuwa 1,672,469 9 523,903 5 2,196,372 8
9 Eastern 1,614,139 9
550,720 6 2,164,859 8
Total 18,273,326 100 9,618,462 100 27,891,788 100
Note: Excluding Stamp Duty and Court fines.
Source: Finance Commission
The amount of local government transfer is calculated by considering the salaries of the approved living
cadre of the Local Authorities by the Department of Management Services and the allowances paid to
Local Authority members.
5.3 Apportionment of Funds among Provinces
After completing the need assessment, the FC agrees with the General Treasury on the total amount to be
allocated to all provinces. Considering the assessment of provincial needs, the FC apportions this total
amount among the provinces. Apportionment for capital needs is done according to sectors/ subjects and
the recurrent expenditure on the basis of needs taking into account the developed criteria.
34
5.3.1 Apportionment of PSDG and CBG for the year 2012
These two grants are provided under capital budget to meet development needs, with the objective of
reducing inter and intra provincial disparities.
The apportioned amounts of capital grants are given in the Table 19.
Table 19: Apportionment of Capital Funds – 2012
(Rs’000)
Province CBG PSDG Sub Total %Development
Projects *Total
Western 427 1,735 2,162 13.60 255 2,417
Central 400 1,595 1,995 12.55 918 2,913
Southern 347 1,642 1,989 12.51 176 2,165
Northern 294 1,302 1,596 10.04 2,424 4,020
North Western 320 1,642 1,962 12.34 194 2,156
North Central 293 1,445 1,738 10.93 1,362 3,100
Uva 320 1,323 1,643 10.33 2,238 3,881
Sabaragamuwa 357 1,266 1,623 10.21 932 2,555
Eastern 267 925 1,192 7.50 4,455 5,647
Total 3,025 12,875 15,900 100 12,954 28,854 Source: Finance Commission
*Nationally agreed foreign and locally funded projects
5.3.2 Apportionment of Block Grant for the year 2012
The Block Grant is to meet the assessed recurrent expenditure needs of the provinces including personal
emoluments and other recurrent expenditure. This grant also includes transfers to the Local Authorities
for the purpose of meeting their expenditure in respect of salaries, wages, overtime and other allowances.
The province-wise break down of the Block Grant for 2012 is given in the Table 20.
Table 20: Block Grant – 2012
(Rs’000)
Source: Finance Commission
Province Block Grant
Western 9,011,251
Central 13,762,746
Southern 11,802,989
Northern 8,556,785
North Western 12,651,069
North Central 7,005,422
Uva 9,458,826
Sabaragamuwa 11,243,324
Eastern 11,385,066
Total 94,877,480
35
It should be noted that the funds earmarked for the Block Grant for 2012 do not include financial
provisions for personal emoluments for new staff deployed mainly by the relevant line Ministries of
Health, Education and Indigenous Medicine and salary arrears to be paid to the health and education staff.
5.3.3 Financing the Local Government Sector
Transfers to Local Authorities for payment of salaries and allowances of approved living cadre and
members are given in the Table 21. At present, the total amount paid in respect of salaries of the staff is
reimbursed from the funds provided under the Block Grant. It has been observed that although revenue
collected by the local authorities has not been used for payment of salaries of the approved cadre, a large
number of employees recruited on contract basis are being paid through such revenue. The FC,
considering this paradoxical situation, intends to review it and to develop appropriate guidelines for
allocating a reasonable proportion of collected revenue for development purposes.
Table 21: Allocation for the Payment of Allowance to Members and Reimbursement of Salaries of
Staffs of Local Authorities – 2012
(Rs’000)
Source: Provincial budget estimates and Finance Commission-2011
Province MC UC PS Tot
LG Members Allowance
Reimbursement of
Staff Salaries
Grand
Total
No of
Members Allowance Living Amount
Western 7 14 27 48 881 61,104 16,358 4,435,742 4,496,846
Central 4 6 33 43 608 41,046 4,429 1,165,013 1,206,059
Southern 3 4 42 49 582 39,126 2,825 744,343 783,469
Northern 1 5 28 34 398 27,138 2,594 685,681 712,819
North Western 1 3 29 33 501 32,976 2,582 678,639 711,615
North Central 1 0 25 26 294 20,034 986 254,295 274,329
Uva 2 1 25 28 319 22,008 1,258 336,694 358,702
Sabaragamuwa 1 3 25 29 424 28,116 1,778 495,787 523,903
Eastern 3 5 37 45 431 30,294 1,972 520,426 550,720
TOTAL 23 41 271 335 4,438 301,842 34,782 9,316,620 9,618,462
36
6. Strengthening Provincial Development
The FC at its Commission meetings reviewed the regional development strategies adopted by the
provinces and decided to introduce new approaches to ensure effective utilization of funds for balanced
regional development. Key elements of new approaches are explained below;
6.1 Aligning with National Policies
The Mahinda Chinthana: Development Policy Framework of the Government (2010-2016) has laid the
foundation for a national vision for Sri Lanka. Most of the line ministries and central government
agencies have developed their strategic development plans based on the policies and strategies of the
national policy framework. In accordance with the guidelines issued by the FC, provincial councils are
also currently engaged in adopting the key directions of the Development Policy Framework in preparing
their medium term plans and annual investment programmes. However, coordination, cooperation and
collaboration of provincial councils with the Central Government agencies, have been observed
inadequately in the planning process. Though the provinces have been entrusted with the responsibility
over twenty key economic and social sectors including education, health, roads, agriculture, and irrigation
etc., they lack a common platform to work together with the relevant central line ministries and
implementing agencies. The FC having recognized this need for cooperation, introduced a mechanism to
bring the national and provincial authorities together to synergize the provincial investment plans with
National Development Policy Framework.
Accordingly, the FC introduced a medium-term planning process at provincial level focusing on national
development priorities. For this purpose, Results Based Planning and Management approach was
introduced. In this approach, it requires all investment programmes of the provinces to relate the inputs
focused on pre-defined deliverables in respect of output, outcome and the impact. Measurable indicators
for output, outcome and impact have to be identified in this process to facilitate the monitoring and
evaluation.
The FC organized a series of sessions with senior officers of relevant central and provincial level agencies
involved in key development activities with a view to aligning provincial development plans with
national development policy framework.
37
6.2 Reducing Regional Disparities
Special attention was paid to reduce inter-regional and intra-regional disparities in developing guidelines
on socio-economic development. Furthermore, due consideration was given to maintain “Minimum Level
of Wellbeing of the people” with particular attention on isolated backward geographical pockets.
As indicated in the national development policy framework, it is expected to increase per capita income to
the level of US $ 4,470 while maintaining an average growth rate of GDP at 8% during the planned
period and to reduce the poverty ratio to 4.2%.
The provinces were instructed to plan their development programmes to be in line with the nationally
funded regional development programmes, identified in the National Development Policy Framework.
These regional development programmes are Rajarata Navodaya, Kandurata Navodaya, Pubudamu
Wellassa, Sabaragamuwa Arunalokaya, Uthuru Wasanthaya, Negenahira Nawodaya, Wayamba
Pubuduwa, Ruhunu Udanaya and Ran Aruna. The objective of this initiative is to avoid duplication and to
supplement the provincial investment with the national development programmes.
6.3 Results Based Management (RBM) Approach
With the objective of utilizing the public funds in a more efficient and effective manner, the RBM
approach has been adopted at provincial level, under the guidance of the FC. This is an approach widely
adopted in development planning at international level. At present, some line ministries too adopt this
approach in order to ensure that target groups be benefited from the projects and programmes as planned.
The FC conducted a series of workshops on RBM at provincial level in order to build the awareness
among the senior provincial officers involved in planning and implementation.
Since 2011, all provinces continue to use two formats (G I and G II) in the preparation of Three Year
Development Plan and related Annual Plans. Through these formats, the provincial authorities have been
directed to develop Key Performance Indicators which can be used in measuring the results / outcome in
the medium-term. The FC has taken into consideration the adherence to the medium-term development
plan, in approving annual development plans submitted by the provinces.
6.4 Results Based Monitoring and Evaluation
The FC is in the process of introducing results based monitoring and evaluation from 2011. Traditional
progress monitoring system focuses mainly on looking at physical and financial input and output with less
attention on the anticipated results. For example, the amount of money spent and the level of physical
progress in building construction are reviewed during various progress review meetings.
38
In this progress reviewing process, the purpose for which the building has been constructed is hardly
taken into account. It is therefore, important to introduce a system to monitor and evaluate the expected
results of the project beyond the output. The FC has sought expert assistance to develop an appropriate
system for results based monitoring and evaluation following a consultative process with the provincial
authorities.
6.5 Cost-Effective Construction Technology
Secretary to the President has directed the FC to introduce the cost-effective construction technology
developed by the National Engineering Research and Development Centre (NERDC) to all provinces.
Consequently, the FC organized an initial awareness programme for the officers of Engineering and
Planning departments of selected provinces. The officers who attended this programme endorsed the cost-
effective technology and requested a more detailed programme be organized for the Chief Secretaries,
Secretaries of Provincial Ministries, Deputy Chief Secretaries of Planning and Engineering and other
senior provincial officers. Accordingly the FC in collaboration with the NERDC organized one day
workshop at the NERDC in Ekala on 12th December 2011. All senior provincial officers accepted in
principle to introduce this technology in their respective provinces. They agreed to undertake at least two
building construction projects on pilot basis preferably in education and health sectors during the year
2012 using this technology. The NERDC agreed to assist the provinces by providing technical and
advisory support.
6.6 Trilingual Website of the Finance Commission
As the previous website www.fincom.lk was not in accordance with the e-Government Policy, the FC
introduced a new website in 2011, in line with the e-Government Policy. This trilingual website can be
accessed through www.fincom.gov.lk.
The FC exchanges a vast amount of information and data with the relevant stakeholders, namely, National
Ministries and Departments, Provincial Ministries/Departments, Private Sector and the General Public.
All reports, circulars and publications of the FC are available in Sinhala, Tamil and English languages for
users and they are allowed to be downloaded.
By developing this trilingual website, the FC expects to provide more efficient, effective and user friendly
service to the stakeholders and the general public adhering to the government policy of sharing
information in transparent manner.
39
6.7 Capacity Building of Local Authorities
The FC is in the process of obtaining technical assistance from the Asia Foundation in order to strengthen
the capacity of selected Local Authorities. In this regard, selected Local Authorities are expected to
develop business plans focusing on tourist industry to promote tourist arrival to their localities. In
developing business plans, the Asia Foundation has agreed to provide training and technical support for
capacity building. In these business plans, factors such as income generation, value addition and private
sector participation are expected to be given priority.
6.8 Optimum Cadre for Provinces
Existing cadre of provincial councils is a major aspect in assessing the annual financial requirements of
provinces. Therefore, the necessity of identifying an optimum cadre for the provincial councils was
emphasized by the stakeholders during past few years. The panel comprising of the FC, the Ministry of
Local Government and Provincial Councils, the Salaries and Cadre Commission and the Department of
Management Services is currently engaged in a process of assessing the optimum cadre for each province.
Cadre reviews in all provinces are expected to be completed within the first quarter of 2012.
In this exercise, redundancy or personalizing of infeasible posts, merging similar type of responsibilities
and assigning wide range of duties wherever possible and creating common units for special services have
been taken into consideration. It is expected to establish an efficient and effective human resource
management system in all provinces by identifying the optimum cadre through this review process.
40
7. Conclusion
The Finance Commission (FC) continued to work in close collaboration with the General Treasury with
regard to provision of required funding to the provinces for the fiscal year 2012 too. Several discussions
were held between the officials of the General Treasury and the FC after obtaining the financial needs
from the provinces.
The directions given by H.E the President during provincial progress review meetings held in all nine
provinces were appropriately incorporated into the FC guidelines issued to the provinces. Accordingly,
provinces were encouraged not to undertake construction of unnecessary buildings, but to use existing
underutilized buildings and other facilities instead, and not to initiate unfeasible projects. All provinces
extended their cooperation to the FC in the preparation of Medium-term Plans and the Annual Plans
according to the Results Based Management approach as instructed by the FC. Provincial authorities
obtained the concurrence of the FC for their annual plans before they were implemented. This process
helped to bring about a scenario of optimum utilization of resources while maintaining a sound
coordination with the central government agencies to avoid duplication.
Before deciding the apportionment of funds to the provinces for 2012, the FC invited all Chief Ministers
individually to discuss and secure their views and suggestions on fund allocation and on the priority
development areas of the respective provinces. This process proved to be very useful to maintain a
rapport with the Chief Ministers and for them to ensure better coordination with the central government
agencies.
The FC has taken a concerted effort to bring about the required coordination between the centre and the
provinces by organizing meetings with officers of the central government and the relevant provincial
agencies. For example, the Secretary and senior officers of the Agriculture Ministry and the Provincial
Secretaries and Directors of Agriculture met at a meeting where national targets were taken into
consideration when setting the provincial targets. In addition, province-specific crops and targets were
41
agreed for the purpose of contributing towards the national objectives. Similar meetings were conducted
in relation to other sectors as well including livestock, inland fisheries, roads, tourism etc.
The FC on the request of the Secretary to the President initiated promoting cost-effective construction
technology at provincial level. It is heartening to mention here that the senior provincial officers including
Chief Secretaries, Deputy Chief Secretaries of Planning and Engineering have agreed to practice cost-
effective construction technologies introduced by the National Engineering Research and Development
Centre (NERDC) in their provinces. Relevant senior provincial officers attended the awareness workshop
on cost-effective construction technologies held at the NERDC, Ekala.
The system of revenue sharing collected at central level with the provinces introduced by the Fiscal
Policy Circular No: 01/2010 in accordance with the budget proposal of 2011 has helped the provinces to
receive larger proportion of revenue as compared to the previous years. Although, the Western Province
faced with a revenue shortfall, the General Treasury has provided a supplementary allocation to
compensate it.
Recurrent expenditure of Rs. 95 billion allocated to the provinces for 2012 was mainly meant to pay the
salaries and allowances of approved living cadre. Recurrent expenditure consists of around 80 percent of
total allocation to the provinces while about 20 percent allocated for the capital work. Apparently, this
difference between the recurrent and capital allocations appears to be a large amount spent for payment of
salaries and allowances while little attention is paid for development work, but the real situation is not the
same. When this situation is analyzed in depth, it can be observed that the salaries paid to various
provincial employees have a direct correlation with the delivery of services to the public. This is more
obvious in education and health sectors as the education and health standards show an increasing trend
over the past several years.
Through a cadre review process undertaken jointly by the Salaries and Cadre Commission, the FC, the
Department of Management Services and the Ministry of Local Government and Provincial Councils, it is
42
expected to determine optimum cadre for every province. This exercise would result in a uniform system
in cadres and avoidance of recruitment of unproductive personnel in future.
It has been observed that some public agencies are engaged in running commercial projects at the expense
of public funds through the existing administrative system. Therefore, the FC is taking steps to encourage
the provincial authorities to practice public-private partnerships in selected development projects,
particularly in the tourism sector. In this regard, the FC has mobilized some external agencies with
technical expertise to support the capacity building of identified local authorities to undertake
commercially viable projects in partnership with private sector.
Finally, it is encouraging to note that the provincial authorities have committed to undertake more
development-oriented programmes to reduce inter and intra provincial disparities enabling to achieve
balanced regional development, aligning with the National Development Policy Framework.
The Finance Commission of Sri Lanka,
42
i
Annexure I
ii
Annexure I
iii
Annexure I
Annexure II
NO. as per 13th
amendmentSource of Revenue
36.02Betting taxes, and taxes on prize competitions and lotteries, other than National lotteries and lotteries
organized by the Government of Sri Lanka ;
36.03 License taxes, arrack, toddy rents, tapping license fees, and liquor license fees ;
36.04
Motor vehicle license fees within such limits and subject to such exemptions as may be prescribed by law
made by Parliament ;
36.05Dealership license taxes on drugs and other chemicals ;
36.06 Stamp duties on transfer of properties such as lands and motor cars ;
36.07 Tool collections ;
36.08 Fees imposed by courts ;
36.09 Fees charged under the Medical Ordinance ;
36.10 Fees charged under Motor Traffic Act ;
36.11 Department fees in respect of any of the matters specified in this list ;
36.12 Fees under Fauna and Flora Protection Ordinance ;
36.13Fees on lands alienated under the Land Development Ordinance and Crown Lands Ordinance ;
36.14Court fees, including stamp fees on documents produced in court ;
36.15Regulatory Charges under Weights and Measures Ordinance ;
36.16
Land revenue, including assessment and collection of revenue, and survey and maintenance of land
records for revenue purposes ;
36.17
Taxes on land and buildings, including the property of the state to the extent permitted by law made by
Parliament ;
36.18
Taxes on mineral right within such limits and subject to such exemptions as may be prescribed by law
made by Parliament ;
36.19 Licensing fees on the possession, transport, purchase and sale of intoxicating liquors ;
36.20
Other taxation within the Province in order to raise revenue for Provincial purposes to the extent permitted
by or under law made by Parliament ;
Provincial Revenue Sources as per 13th
Amendment
IV
Annexure III
(Rs' 000)
Province and
YearB.T.T.
Motor
Vehicle
license Fees
Excise Duty Stamp Duty Court Fines Others Total
Western
2006 6,395,410 1,239,530 210,560 4,085,855 395,679 453,010 12,780,044
2007 8,845,367 1,309,509 219,268 4,087,000 532,000 1,957,697 16,950,841
2008 10,788,915 1,817,334 189,451 4,096,425 438,525 2,865,565 20,196,215
2009 10,248,673 1,729,993 185,315 3,636,540 478,852 1,866,003 18,145,376
2010 12,747,890 1,971,072 284,330 4,549,780 596,330 2,591,578 22,740,980
Central
2006 576,113 248,105 78,594 364,551 40,871 110,820 1,419,054
2007 1,059,218 250,864 105,011 436,000 55,000 205,412 2,111,505
2008 1,328,390 291,502 118,861 425,604 51,872 186,889 2,403,118
2009 1,511,254 315,687 103,985 404,047 66,654 305,852 2,707,479
2010 1,682,540 410,635 96,365 481,791 68,208 246,835 2,986,374
Southern
2006 581,557 201,815 40,471 319,950 129,993 88,286 1,362,072
2007 1,120,398 320,949 46,768 381,000 152,000 299,078 2,320,193
2008 1,373,959 310,992 58,117 408,417 141,788 390,200 2,683,473
2009 1,401,556 282,427 62,259 349,780 180,256 342,893 2,619,171
2010 1,632,237 350,636 60,892 501,549 171,456 207,363 2,924,133
North Western
2006 417,191 259,718 23,360 503,018 168,016 67,811 1,439,114
2007 736,541 303,337 40,879 584,000 202,000 199,335 2,066,092
2008 943,919 434,119 31,100 609,579 155,820 251,489 2,426,026
2009 1,009,108 501,749 29,895 561,758 178,465 349,018 2,629,993
2010 1,136,366 505,145 51,933 671,045 318,866 265,261 2,948,616
North Central
2006 218,847 89,823 21,526 22,555 95,497 85,828 534,076
2007 372,142 147,930 17,098 28,000 93,000 97,308 755,478
2008 495,397 120,773 15,193 26,050 71,513 120,614 849,540
2009 516,581 177,915 18,362 29,256 89,712 161,809 993,635
2010 559,008 214,692 19,495 41,118 183,595 152,962 1,170,870
Uva
2006 175,679 57,151 31,239 45,461 43,301 104,681 457,512
2007 322,785 64,163 36,840 71,000 57,000 72,520 624,308
2008 395,192 85,132 41,470 70,584 55,603 109,356 757,337
2009 440,069 147,196 36,883 62,649 52,319 89,978 829,094
2010 528,299 122,619 39,883 96,454 81,695 106,534 975,484
Sabaragamuwa
2006 260,803 153,818 25,989 164,944 91,841 57,138 754,533
2007 513,570 186,009 30,896 180,000 104,000 126,529 1,141,004
2008 645,620 176,808 26,849 200,117 75,123 120,637 1,245,154
2009 691,226 247,961 26,144 180,925 85,815 187,626 1,419,697
2010 838,537 264,258 38,165 262,891 99,174 201,725 1,704,750
Eastern
2009 261,021 92,000 - 319 - 58,950 412,289
2010 459,080 72,215 - 109,690 69,085 189,540 899,610
Total
2006 8,625,600 2,249,960 431,739 5,506,334 965,198 967,574 18,746,405
2007 12,970,021 2,582,761 496,760 5,767,000 1,195,000 2,957,879 25,969,421
2008 15,971,392 3,236,660 481,041 5,836,776 990,244 4,044,751 30,560,863
2009 16,079,488 3,494,928 462,843 5,225,274 1,132,073 3,362,129 29,756,734
2010 19,583,957 3,911,272 591,063 6,714,318 1,588,409 3,961,798 36,350,817
Note: Excepr Nothern Province
Source : Finance Commission recommendations and Provincial budget estimates 2011
Actual Collection of Revenue by Sources 2006 - 2010
Annexure II V
vi
Annexure IV
Criteria for Allocation of Amounts Collected as Court Fines among Local
Authorities.
Introduction
Segmentation is one of the most fundamental strategic need assessment techniques: grouping
Local authorities according to their similarity in several dimensions related to the income ability
under consideration. From a need assessment management viewpoint, segmentation of local
bodies, is the act of dividing all local bodies into distinct groups who will fulfill necessities at
different level. By dividing all local bodies into relatively homogenous subgroups or clusters,
both strategy formulation and tactical decision making, can be more effective. The basis for
selecting the optimal number of segmentation results in partitioning empirical data.
There are many techniques available for grouping individuals into different segments on the
basis of multivariate information, but clustering remains the most popular and most widely
applied method.
Cluster analysis, the most common method for segmentation, is an iterative process that requires
the researcher to make numerous decisions relating to creation and interpretation of the clusters.
The most important aspect of segmentation is the interpretation of the clusters for the usefulness
of the solution. After segmentation we can formulate policy for resource allocation in each local
authority. In this paper it is discussed on collected court fine allocation among Local Authorities
using as variables: No of voters, no of houses, no of LG members, Land area under LA, No of
Samurdi recipients and, Revenue as by Factor and Cluster Analysis Approach.
Statistical Methodology
1.1 Introduction
Segmentation may be done judgmentally based on experience, with some statistical testing after
the fact, but such segmentation is limited to a handful of variables at best. For a true multivariate
vii
determination of homogeneous segments in a population, Cluster Analysis is an effective tool.
When used as a segmentation technique, cluster analysis should only be performed on a small
number of variables (or factors). The variable selection can be accomplished either by
judgmental selection, or by a factor analysis. The preferred method is a factor analysis since it is
a statistical procedure. However, the selection process is still judgmental; thus it is a good idea
to select more variables than, will be used in the final solution, and then using the cluster
analysis to determine which ones work as the best and check the significance of clusters using
ANOVA.
1.2 Application of Factor Analysis Technique
In this research, SPSS, Cspro, and Minitab software were used. The SPSS provides several
options for the Factor analysis; Initial factoring method that is used for analysis, such as
Principal Components Analysis, Un weighted least squares, generalize least squares, Maximum-
Likelihood, Alpha Factoring, Image Factoring and each of these initial factoring methods
generates uncorrelated factors. Arguments exist supporting all of the different initial factoring
methods available. In this paper, it is assumed that the objective during the initial factor analysis
is to determine the minimum number of factors that will adequately account for the co variation
among the larger number of analysis variables. This objective can be achieved by using any of
the initial factoring methods. Therefore, the FACTOR default used was, Principal Components
Analysis, which is further discussed in the Paper.
Principal Component Method
This specifies what type of method is to be used to extract the initial factors. As discussed
earlier, the Principal Components Analysis (PCA) method (PRINCIPAL) was chosen for the
initial factor extraction. The PCA method simply transforms the set of variables into another set
of variables; that is, the data is summarized by means of a linear combination of the observed
data, this transformation is performed because of the objective mentioned earlier to account for
as much variation as possible in the data. With PCA, the first “component” or factor is defined in
viii
such a way that the largest amount of variance in the data is explained by the first component.
The second “component” or factor that is identified explains the second most about the variance
in the data AND is perpendicular (thus, uncorrelated) to the first component. The remaining
components, or factors, are found in a similar manner.
Factor Rotating
It is generally considered that using a rotation in factor analysis will produce more interpretable
results. If the factor analysis is being performed specifically to gain an explanation of what
factors or groups exist in the data or to confirm hypothesized assumptions about the data,
rotation can be especially helpful. Factor patterns can be rotated through two different ways:
Orthogonal rotations which retain uncorrelated factors
Oblique rotations which create correlated factors
While arguments exist supporting both types of rotation methods, factor analysis which uses an
orthogonal rotation often creates a solution that is easier to grasp and interpret than a solution
obtained from an oblique rotation.
In this paper is performed for exploratory data analysis purposes and to discover simplified
factor or dimension descriptions that exist in the data. Therefore, one of the common orthogonal
rotation methods, VARIMAX, is discussed in the section below.
For the two data set included in this paper, the overall goals for running Factor analysis are the
following:
Determine the minimum number of factors that can adequately account for the variance
in the data,
Find simpler, easier to interpret factors through rotating the factors, and
Thus determine meaningful clusters using those factor loadings.
ix
VARIMAX rotation is a transformation that simplifies the interpretation of the factors by
maximizing the variances of the squared loadings for each factor, which are the columns of the
factor pattern.
Application of Cluster Analysis Techniques
Types of Cluster Analysis
There are two basic types of cluster analysis, Hierarchical and Non Hierarchical.
Agglomerative Hierarchical Clustering
If the groups are produced by successive amalgamation then the method is agglomerative.
Agglomerative Hierarchical Clustering takes each observation and places it in it’s own cluster.
Next the two closest clusters are combined. This continues until there is only one cluster left.
Then an analysis is made to determine the appropriate number of clusters.
Disjoint or Euclidean Distance Clustering (Non Hierarchical) starts with seeds for each cluster
(the number of clusters is specified by the user). Each observation is assigned to the nearest seed
(by Euclidean distance) to form a cluster. The seeds are then replaced by the means of the
temporary clusters. The process continues until there are no further changes in the cluster
means. It should not be used on small data sets, as it is not guaranteed to converge.
Variables for Cluster Analysis
Note that the variables used for this analysis were selected based on a factor analysis that was
performed first. Thus 4 variables may be reduced to 2 factors, from each of which one variable is
chosen to represent that factor as discussed previously in the paper.
Limitation of Cluster Analysis Applications
Cluster analysis is extremely sensitive to correlation. All efforts should be taken to
eliminate variables that are correlated with one another, and if this is not possible, then
make sure a validation of the clustering is done. One way to use correlated variables is to
x
use them as a factor, or a linear combination of the variables that are correlated. So it is
done factor analysis discussed earlier.
Cluster analysis is more of a heuristic than a statistical technique. As such, it does not
have the foundation of statistical tests and reasoning (unlike regression analysis, for
instance),
Cluster analysis evolved from many different disciplines and has inherent biases from
these disciplines. Thus, the analysis can be biased by the questions asked of it, and
Different methods and different numbers of clusters generate different solutions from the
same data, so it is important to validate findings.
Ward’s Method
This method is distinct from other clustering method because it uses an analysis of variance
approach to evaluate the distances between clusters. In general this method is very efficient.
Cluster membership is assessed by calculating the total sum of squared deviations from the of a
cluster. The criterion for fusion is that it should produce the smallest possible increase in the
error sum of squares.
ANOVA
ANOVA compares the means of different experimental conditions and determines whether to
reject the hypothesis that the conditions have the same population means given the observed
sample variances within and between the conditions. In this case ANOVA was adopted to check
whether cluster means significantly different or not.
Annexure V
Form GI
Sector:
2011 2012 2013
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Province: …………………
Provincial Ministry: ………………………………
Results Framework
Key Issues Priority Thrust Areas Objectives Outcome Indicators Baseline Achievement
(2009)
Targets
xi
Annexure V
Form G II
Sector:
Total Investment of the Sector:
Rs.Mn
Prority Thrust Area 1:
Budget for the Thrust Area 1:
Programme 1:
Projects Expected OutputTotal Estimated
Cost
Estimated Budget
for 2012
Other Sources if
any
i.
ii.
iii.
i.
ii.
iii.
i.
ii.
iii.
Projects Expected OutputTotal Estimated
Cost
Estimated Budget
for 2012
Other Sources if
any
i.
ii.
iii.
i.
ii.
iii.
i.
ii.
iii.
3.
Total
Total
Programme 2:
1.
2.
2.
3.
Province: ………………..
Provincial Ministry : ……………………………………
Capital Expenditure (PSDG) - 2012
Results Based Investment Framework
1.
xii