• Int’l report calls on next GoSL’s econ. reforms to bolster anti-corruption, additional debt relief, & public consent  

Despite a bailout from the International Monetary Fund (IMF), the risk of return to debt distress remains high, as does the possibility of renewed unrest and political turmoil. In this context, the next Government should work with the IMF to ensure that the burdens and benefits of economic reforms are shared more equally and are able to win broad public support. 

Discussing the ongoing economic reforms in the context of recent political developments, including the upcoming Presidential Election, a new report titled ‘Sri Lanka’s Bailout Blues: Elections in the Aftermath of Economic Collapse’, which was issued by the International Crisis Group, said that the next government’s economic reform-related steps should be backed by a strengthened anti-corruption drive and additional debt relief to give the Government more fiscal breathing space.

The report pointed out that although the country has returned to modest growth, hardship and anger at the political establishment fester and opposition to economic reforms is likely to shape the outcome of the Presidential Election.

The status quo

The report explained that two years on, from the economic and political meltdown, Sri Lanka’s crisis is far from resolved, and that despite improved macro-economic indicators and the disappearance of most signs of turmoil, hardship remains acute and widespread. 

“Amid an uncertain economic outlook, political volatility is high; it could rise still further as the country approaches a Presidential Election and embarks on a series of other Polls, including a Parliamentary Election some time before August of next year (2025),” it concluded, observing that regardless of who wins in the Presidential Election, the Government will likely face high expectations of a respite from austerity that will be hard to meet within the current terms of the IMF bailout. 

The report explained the importance of continuing economic reforms, especially as per the agreements that the country has reached with the IMF, and improving them as needed. “Regardless of who eventually wins, political parties and civil society organisations should seize the opportunities presented by the IMF programme to reinforce the anti-corruption fight while recrafting the State’s relationship to the economy in ways that can produce inclusive growth. With its own reputation at stake, the IMF, in coordination with its contributing Member States and other multilateral institutions, needs to assist whichever government comes to power to implement the deal in the most equitable, fair and transparent way possible. The IMF will need to be willing to revisit elements of its reform programme, including through a new debt sustainability analysis that could help deliver the additional relief needed for Sri Lanka’s recovery to be economically and politically sustainable.”

It further concluded that although the Sri Lankan economy may for now have been put back on its feet, many citizens are yet to be convinced that the price has been worth paying.

The IMF programme

The report discussed several key aspects of the IMF programme that the country has to take into account irrespective of political developments, including Government changes.

Fighting corruption is a key element, regarding which the report said that it is widespread and that it “has been a major factor” in its economic collapse. It added that this is in a context where the IMF agreement had committed the Government to addressing “corruption related vulnerabilities”, including by allowing IMF staff to conduct a Governance Diagnostic Assessment.

“Released on 30 September of last year (2023), the Assessment report offers a damning indictment of institutionalised corruption and the economic losses it entails. Governance and corruption issues have imperilled national and social well-being”, the 139-page report argues, with “impunity afforded to top officials, even for ruinous behaviour”.

Concrete recommendations focus on the need to enhance transparency of Government financial operations, especially with regard to procurement contracts; establishing more effective monitoring and accountability within State institutions; and make the information needed for the civil society and the Parliament to track the use of public funds more easily available. Despite the popularity of these anti-corruption provisions, the report claimed, the Government is widely seen as less than enthusiastic about adhering to them.

“The Government’s main achievement to date in fighting corruption has been approval in August, 2023, of the Anti-Corruption Act, which strengthened existing legislation and brought Sri Lankan law into line with the United Nations Convention against Corruption. Activists and opposition politicians are generally pleased with the new law. In particular, they applaud how it increases the powers of Sri Lanka’s long-standing anti-corruption Commission, the Commission to Investigate Allegations of Bribery or Corruption (CIABOC), better protects its independence and budget from political interference, and makes it easier for the Commission to cooperate with foreign investigative agencies and judiciaries,” it said, adding that reports indicate that the CIABOC has however been slow to set up its new organisational structure and draft the internal procedures needed to function effectively, though a number of new measures have been unveiled.

Equitable & sustainable reforms

Noting the importance of ensuring that the reforms are equitable and sustainable, the International Crisis Group added that with the Presidential Election approaching, the future of Sri Lanka’s economic reforms hangs in the balance. This is largely because of opposition to the tough measures imposed by the Government. Quoting reports, it pointed out that some influential foreign Governments, meanwhile, are fearful that Elections could bring to power a Government less committed to the IMF’s liberalising measures, or that powerful constituencies in Sri Lanka might otherwise thwart the reforms.

“For the sweeping programme of fiscal adjustment and liberalisation to work in Sri Lanka, the Government, the IMF and foreign supporters should do more to ensure that the cost of reforms is shared more evenly than it has been to date, with the wealthy paying a fairer share and poor, struggling Sri Lankans offered greater relief from austerity measures,” the report recommended, adding: “The authorities should also take bolder steps to combat corruption and impunity and loosen the hold of vested interests on policy-making, all of which undermine public faith in the Government at a time when major changes in the State’s role in the economy make trust in the impartiality and integrity of authorities more important than ever. Only by appealing to public ideals of fairness, integrity and equity can the IMF’s overall reform agenda prosper.”

Protecting the vulnerable is a key aspect of ensuring that the reforms are equitable and sustainable, as per the report, which noted that given budget constraints and low tax rates, the Sri Lankan Government does not now have the money to fund the universal anti-poverty programme that many researchers and activists are appealing for.

“Even so, it could commit to gradually increasing cash grants as State resources improve, while taking other steps to offer relief to the most vulnerable. It could, for example, provide adequate funding for school meals and the ‘Triposha’ nutritional supplement programmes, which are open to all children and pregnant and lactating women, respectively. Furthermore, in light of the troubled rollout of the Aswesuma cash transfer initiative, the Government should ensure access to reliable information with regard to eligibility, selection and benefits, carrying out meaningful consultations with those most affected – namely women, vulnerable groups and other welfare beneficiaries – and organisations who work with them. On the basis of this feedback, the authorities should review and possibly adjust the Aswesuma algorithm.”

Regarding the importance of continuing and strengthening structural reforms to the State and the economy, it was noted that a lack of transparency in the Government has fuelled public concerns that economic reforms are not being carried out fairly or cleanly. It said that ensuring broad political and public support for reforms is nevertheless critical, particularly when it comes to major changes in the structures of the State and the economy that touch on the lives of many Sri Lankans.

“Any sale of State assets under the terms of the IMF programme, for instance, should be pursued as transparently as possible, with strong safeguards against insider deals and with benefits and costs clearly communicated to the public,” it said, further recommending that in order to avoid suspect sales and ensure the maximum public benefit from any restructuring, the Government should first establish the corporate governance, competition, and regulatory frameworks that are needed.