Resurrecting Sri Lanka: A Comprehensive Plan for Recovery Based on IMF GDR

By RM Manivannan – Chairman – Supreme Global Holdings

In September 2023, the International Monetary Fund (IMF) published its Governance Diagnostic Assessment of Sri Lanka, offering a deep analysis of the institutional weaknesses and corruption vulnerabilities that have contributed to the country’s economic and governance crises.

To steer Sri Lanka toward recovery, it is imperative to address both the immediate challenges and the long-term structural reforms necessary for sustainable governance and economic stability. Below is a detailed roadmap based on the IMF’s findings, focusing on governance reform, anti-corruption measures, and economic restructuring to rebuild trust in public institutions and ensure long-term growth.

1. Reforming Anti-Corruption Mechanisms: Tackling the Root Causes

Corruption remains one of the most significant impediments to Sri Lanka’s progress. Although the recent passage of the Anti-Corruption Act (ACA) marks a notable improvement, the report emphasizes that its successful implementation is critical for achieving meaningful progress.

Key Actions:

Merit-Based Appointments in CIABOC: The IMF points to the importance of a transparent and merit-based process for selecting commissioners for the Commission to Investigate Allegations of Bribery or Corruption (CIABOC). This body is central to investigating and prosecuting corruption cases. The selection process should involve input from governance experts to ensure the highest standards of integrity.

Creating an Asset Recovery Framework: The lack of a legal framework to recover stolen public funds presents a significant challenge. Enacting a modern asset recovery law will empower authorities to seize illicit assets domestically and abroad.

Coordinating Anti-Corruption Agencies: There are significant gaps in coordination between Sri Lanka’s Supreme Audit Agency, the Financial Intelligence Unit (FIU), and CIABOC. These agencies must work in harmony to share information and take decisive action against corruption, particularly in cases involving public officials.

The IMF also highlights the need for public participation in oversight processes. Currently, civil society’s role in monitoring public officials is limited, in part due to restrictive counter-terrorism laws. Reforming these laws will allow for more transparency and public involvement, fostering accountability and reducing impunity.

2. Strengthening Public Financial Management (PFM): Improving Fiscal Discipline

The IMF identifies significant weaknesses in Sri Lanka’s public financial management (PFM) systems. The country has struggled with inefficient budgeting, a lack of transparency in fiscal processes, and insufficient oversight of capital investment projects. These issues have opened the door to corruption, particularly in the management of unsolicited proposals and the operation of state-owned enterprises (SOEs).

Key Actions:

Budgetary Reforms: Transparency in the budgeting process is essential. The current system lacks clarity and public access to budget information, making it difficult to hold officials accountable for fiscal mismanagement. Instituting open budget platforms and regular public audits will increase transparency and allow citizens to track government spending.

Investment Planning and Management: Sri Lanka has a troubled history of accepting unsolicited capital investment proposals, often without competition or adequate oversight. This practice has led to an accumulation of problematic projects, raising concerns over corruption and inefficiency. The IMF recommends establishing a clear, competitive bidding process for all public investment projects.

Reforming State-Owned Enterprises (SOEs): SOEs play a major role in the Sri Lankan economy, but they are often plagued by governance issues and inefficiencies. There is a lack of regulatory guidance and oversight in selecting executives for SOEs, leading to corruption vulnerabilities. The IMF report recommends a clear policy for managing the government’s financial stake in SOEs and strengthening regulatory oversight to ensure accountability.

Additionally, the role of the Auditor-General must be strengthened. Currently, weaknesses in internal audit systems place an undue burden on the Auditor-General, who is responsible for identifying corruption risks. By improving internal controls and implementing robust follow-up mechanisms on audit findings, Sri Lanka can reduce the risk of fiscal mismanagement.

3. Reforming Tax Policy and Revenue Management: Increasing Transparency

The IMF acknowledges that Sri Lanka has made progress in clarifying its legal framework for taxation. However, frequent amendments to tax laws, often with little public notice, have created instability and confusion. Additionally, corruption risks are exacerbated by the discretionary power of ministers in determining tax incentives and the lack of transparency in tax concessions for strategic investments.

Key Actions:

Stabilizing Tax Policy: Sri Lanka must curb the practice of frequent, last-minute tax law amendments, which create uncertainty for businesses and investors. A more stable tax policy will help restore confidence in the economic environment.

Increasing Transparency in Tax Concessions: The IMF notes that the current system for granting tax concessions, particularly through the Special Commodity Levy, lacks transparency and is susceptible to corruption. Implementing clearer guidelines and reducing ministerial discretion in granting these concessions will reduce corruption risks.

Improving Revenue Collection: Sri Lanka’s revenue collection systems need modernization. By improving tax administration and enhancing the capacity of the Inland Revenue Department, the government can close revenue leaks and ensure that the tax system is fair and efficient.

4. Improving Procurement Practices: Reducing Corruption in Public Contracting

Public procurement in Sri Lanka remains one of the most corruption-prone areas, with a lack of transparency and oversight exacerbating the problem. The absence of a comprehensive public procurement law has led to high levels of political engagement in the awarding of contracts, increasing the risk of favoritism and mismanagement.

Key Actions:

Establishing a Comprehensive Public Procurement Law: The IMF report recommends the introduction of a public procurement law that establishes clear guidelines for the competitive bidding process and ensures transparency at all stages of contract management. This will reduce opportunities for political interference and improve the efficiency of public contracting.

Strengthening Contract Management: Once contracts are awarded, there needs to be stricter monitoring of performance and enforcement of contract terms. Currently, the lack of focus on contract management leads to underperformance and corruption.

Disclosing Beneficial Ownership Information: The lack of information on the true owners of companies bidding for public contracts increases the risk of conflicts of interest. Requiring full disclosure of beneficial ownership will improve transparency and reduce corruption risks.

5. Reforming Legal and Regulatory Infrastructure: Ensuring Accountability

To sustain long-term recovery, Sri Lanka must focus on strengthening its legal and regulatory infrastructure. The IMF report highlights several governance challenges, including the compromised independence of key institutions and critical gaps in the legal and regulatory framework governing public resources.

Key Actions:

Ensuring Independence of Key Institutions: The government must take steps to ensure the financial and operational independence of essential accountability and law enforcement bodies, including CIABOC and the judiciary. This will help reduce political interference in governance.

Integrating Modern Information Technology: The IMF emphasizes that the public sector should adopt modern information technology to improve efficiency and detect inefficiencies and improprieties. This will also help link information across agencies and improve inter-agency coordination.

Creating Platforms for Civil Society Participation: Governance reform must include mechanisms for inclusive and participatory governance. By creating platforms for civil society engagement, the government can increase transparency and accountability.

Conclusion: A Path Toward Sustainable Recovery

Sri Lanka’s recovery will depend on its ability to address the deep-rooted governance challenges that have plagued its institutions for decades. The IMF’s 2023 Governance Diagnostic Assessment outlines a clear roadmap for tackling corruption, improving fiscal management, and building a more transparent and accountable government. By implementing these recommendations, Sri Lanka can restore confidence in its public institutions, attract investment, and lay the foundation for long-term economic growth.

The path ahead will not be easy, but with sustained commitment to governance reforms, Sri Lanka can resurrect itself and chart a new course for its future. (newswire)

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