He said that between 2002 and 2003 total government service had been trimmed and vacancies of 120,000 had not been filled, but now expenses were higher.
BBC: Is the government trying to pay for all this expenditure by printing money?
Minister : Yes. There is no alternative.
BBC: The government has no alternative but to print money and inflation also goes up very fast?
Minister: Yes. In that event the government will have to stop state recruitments with immediate effect, stop the war, stop welfare expenditures, stop fertilizer subsidies, stop school mid-day meals. However, the government is not prepared to move into an expenditure limiting program because the government believes it is politically bad for the country.
The BBC was questioning the minister on its weekend program, after country-wide inflation measured by the Sri Lanka Consumer Price Index (SLCPI) hit 24.1 percent in October 2007.
This is the highest shown by the index which was started in 1999 to reflect modern spending patterns of Sri Lankan consumers.
The index is showing even higher inflation than the Colombo Consumer Price Index (CCPI) which authorities claimed was showing "wrong" inflation as it had a five decade old base year.
Embarrassingly however, the decade old Sri Lanka wide index is now showing higher inflation that the older CCPI. Compared to the modern SLCPI which showed a 24.1 percent increase, the much older CCPI, showed only 19.6 percent inflation in October.
Sri Lanka has since introduced another controversial index which authorities claim to show "true" but lower inflation.
Gunewardene was deputy finance minister in 2002 when the index showed 6.6 percent inflation in the 12-months to December and in 2003 when inflation was just 1 percent amidst tight fiscal discipline.
At the time, the then opposition egged on by the Marxist-nationalist Janatha Vimukthi Peramuna vilified the minister and pushed the country back into high budget deficits and money printing.
Inflation promptly started to rocket up.
The SLCPI's previous high was 18 percent recorded in January 2005, after 65 billion rupees was printed for fuel and fertilizer subsidies in 2004 amidst a massive reversal in fiscal discipline.
Minister Gunewardene said oil prices were high and inflation was a global problem as massive amounts of money was spent on oil imports, resulting in "imported inflation".
But speaking to Sandeshaya minutes before, opposition United National Party parliamentarian Kabir Hashim said the government was giving various excuses such as oil prices and war for inflation.
Hashim charged that the government had printed 45 billion rupees from May to September and was borrowing vast amounts from the state banks, causing high inflation.
"The government says this increase in prices is because of oil price increases on one hand and on the other side an argument is built up that it is because of the war," he said
"This is a lie."
He charged that after printing vast amounts of money the government had borrowed money from foreign banks "mortgaging" future generations.
Hashim said all countries experienced high oil prices, even in the region, but they had low inflation, including India. India's most recent inflation was 3.75 percent.
Researchers at Sri Lanka's central bank have shown that inflation would be lower if oil prices were adjusted automatically.
In August this year Sri Lanka froze oil prices again abandoning a short-lived automatic pricing formula. By July country-wide inflation had fallen to 14.7 percent from 17.7 percent in June despite numerous oil price hikes.
But the government then froze oil prices till December, overruling oil minister A H M Fowzie who wanted to raise prices, creating imbalances in the economy, making it more difficult for the Central Bank to conduct prudent monetary policy.
Both in 2002 and 2003 when Sri Lanka had very low inflation, the country had an automatic pricing formula for fuel.
Even oil producing countries with poor economic management have high inflation. Venezuela under populist president Hugo Chavez had 17.8 percent inflation in October.
Iran, another oil producing country reported 19.1 inflation in November. In August, the country's central bank governor, Ebrahim Sheibani, resigned over a forced interest rate to print more money.
Sri Lanka's politicians find it difficult to grasp that inflation and balance of payments problems are monetary phenomena that have little to do with oil prices.
Sri Lanka has suffered chronic high inflation and balance of payments troubles since the island scrapped a currency board regime and moved to a central banking regime with money printing powers.Economic analysts have called for legislated inflation targeting or a return to a currency board regime to restore economic stability and low inflation.