In a landmark move, the International Monetary Fund (IMF) has laid out an ambitious 16-point plan designed to tackle the governance hurdles faced by Sri Lanka. This visionary initiative promises to reshape the country’s administrative landscape, setting the stage for a new era of growth and prosperity.
Pioneering as the first Asian nation to undergo such a comprehensive assessment, Sri Lanka is poised for a transformation. From March 9th to March 31st of this year, an IMF mission delved deep into the governance fabric, uncovering entrenched corruption vulnerabilities and systemic weaknesses.
These challenges stem from erratic tax policies, incomplete approaches to Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT), and suboptimal legal frameworks for State-Owned Enterprises (SOEs), among other critical areas. The IMF’s 16-point strategy is poised to herald a brighter future for Sri Lanka, redefining governance standards and reigniting the nation’s economic potential.
The recently released technical assistance report highlights extensive corruption vulnerabilities and governance weaknesses. These stem from inconsistent tax policies, inadequate approaches to Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT), weak legal frameworks in State-Owned Enterprises (SOEs), the absence of legislation for public procurement, frequent modifications to tax laws, concerns about conflicts of interest in the Central Bank managing EPF and regulating NBIFs, and a lack of clear mechanisms for information sharing among tax authorities.
Despite significant public outcry and protests last year, the report notes that authorities have not taken sufficient action to recover embezzled funds, and civil society participation remains discouraged.
The report emphasizes that existing governance structures have not set clear standards for acceptable official conduct, failed to deter and penalize wrongdoing, and have not pursued individuals or retrieved public funds that have been taken out of the country. Civil society’s involvement in overseeing and monitoring government actions is hampered by limited transparency, a lack of platforms for inclusive and participatory governance, and the broad application of counter-terrorism regulations.
The GDA stresses that the impunity for misconduct enjoyed by officials continues to undermine trust in the public sector. It also raises concerns about limited access to an efficient and rule-based process for dispute resolution, which negatively impacts the integrity of the judiciary.
While a new Anti-Corruption Act (ACA) is in effect, the report points out that key accountability institutions, including the Commission to Investigate Allegations of Bribery and Corruption (CIABOC), lack the authority and capability to effectively carry out their functions. The ACA’s improvements need to be complemented with the drafting and enactment of a modern Asset Recovery Law. The prompt implementation of the ACA is crucial to address current corruption vulnerabilities related to the lack of a functional system for receiving, publishing, and reviewing asset declarations by public officials, as well as procedural and competency issues in the investigation and prosecution of corruption cases.
Among the recommended priority actions, the GDA advises the government to either abolish or suspend the application of the Strategic Development Projects Act until a clear and transparent process for evaluating proposals and costing investment promotion conditions is established. The report notes that the Act lacks a definition of the criteria for a project to be considered strategically relevant. It also points out that revenue forgone from such projects is not systematically compared against their potential benefits through a transparent process.
The GDA underscores the need for a comprehensive, impartial, and transparent analysis to determine the viability of a specific project and whether its potential benefits outweigh its social costs. This includes considerations like revenue forgone, increased administrative costs, market distortions, and potential perceptions of unfairness.
Additionally, the report scrutinizes high corruption vulnerabilities in public procurement due to the absence of a procurement law. This has led to significant political involvement in the selection of procurement winners, inadequate contract management, limited transparency, and other issues. The enactment of a Public Procurement Law reflecting international best practices is recommended by December next year.
The report also highlights the lack of information on beneficial ownership of companies, which increases the risk of conflicts of interest in awarding contracts.
While anti-money laundering mechanisms have the potential to reduce corruption vulnerabilities, the report criticizes current approaches to Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT), which have largely failed to support effective state action. It points out issues in legal definitions and processes for capturing and sharing information on the beneficial ownership of companies that have not been addressed since 2015.
Current practices by financial institutions often fail to identify suspicious transactions and prevent money laundering. Weaknesses in the legal framework, problems in domestic cooperation on corruption-related issues between competent authorities, and difficulties in establishing effective protocols for collaboration with foreign jurisdictions hinder the sanctioning of corrupt officials for money laundering offenses or the recovery of stolen assets.
Furthermore, the report highlights governance weaknesses related to increased corruption risks around Contract Enforcement and Property Rights, which have constrained private sector development. Lengthy waiting times for the resolution of contract disputes discourage reliance on courts for effective and fair dispute resolution, prompting parties to seek alternative, not always legal, means to expedite adjudication. Pervasive confusion over the allocation of property rights and the lack of progress in digitizing property records lead to extensive, long-term legal disputes and encourage resorting to opaque methods to influence dispute resolution.
Corruption risks around state-owned land, estimated at around 80 percent of the country, are particularly severe due to the combination of unclear title ownership, the absence of a property registry, and ambiguity in processes for the divestiture of state property.
As a result, the report notes that the integrity of the judiciary has eroded over time, and private parties have resorted to using illicit payments to resolve disputes.
The recommendations are expected to inform the development of governance and anti-corruption policies and programs, enhance the legal and institutional frameworks, and guide reform measures in line with the Staff Level Agreement for an Extended Credit Facility Arrangement for Sri Lanka.
Table . Priority Recommendations |
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Measure | Authority | Objective | Timeline3 | |
1 | By November 2023, establish an Advisory Committee, composed of independent experts on anticorruption to assist in the nomination of CIABOC Commissioners and the Director General. | Constitutional Council | Strengthen accountability and rule of law | ST |
2 | Publication of Asset Declarations for senior officials (President, Prime Minister, ministers) on a designated website in line with Anticorruption Law by July 2024. | CIABOC | Strengthen accountability and transparency | ST |
3 | Enact Proceeds of Crime legislation that is fully aligned with UNCAC and FATF standards by April 2024 | Ministry Justice | Strengthen accountability and rule of law | ST |
4 | Amend the National Audit Act to enable the-the AuditorGeneral to levy surcharges on officers, including Chief Accounting Officers, for failure to properly discharge responsibility for oversight and accountability for use of public resources. | Auditor-General; Ministry Finance | Strengthen accountability and transparency of fiscal governance | ST |
5 | Finalise and implement regulations to support the provision of beneficial ownership information as required by the Companies Act and establish a public beneficial ownership registry by April 2024. | Ministry Industries | Strengthen accountability and transparency | ST |
6 | Enact a Public Procurement Law that reflects international good practice by December 2024. | Ministry Finance | Enhance transparency in fiscal governance | MT |
7 | In December 2024, publish report on a designated website on progress in increasing the proportion of competitive tendered procurement contracts in the 10 agencies determined to have the lowest level of competitive tenders in 2022. | Ministry Finance | Increased transparency in fiscal governance | MT |
8 | Starting in March 2024, publish on a designated website: (i) all public procurement contracts above LKR 1 billion, along with comprehensive information in a searchable format on contract award winners; (ii) a list of all firms receiving tax exemptions through the Board of Investment and the SDP, and an estimation of the value of the tax exemption; and
(iii) a list of firms receiving tax exemptions on luxury vehicle import. Information to be updated every 6 months. |
Ministry Finance4 | Strengthen transparency | ST/MT |
9 | Implement the SOE Reform Policy, ensuring that the holding company (HoCo) and the advisory committee are comprised of skilled, independent, and ethical staff. | Ministry Finance | Enhance transparency | ST/MT |
10 | Abolish or suspend application of the Strategic Development Projects Act until promulgation of explicit and transparent process for evaluation of proposals and costing of investment promotion conditions. | Office of the President | Strengthen transparency | ST |
11 | Amend tax legislation to eliminate or restrict ministerial authority to introduce tax changes without prior parliamentary approval and ensure that such changes do not generate revenue losses | Ministry Finance | Strengthen rule of law | ST |
12 | Institute short-term anti-corruption measures within each revenue department to strengthen internal oversight and sanctioning processes and linkages with CIABOC and related criminal investigation and enforcement processes by Dec 2023 and issue a public report on steps taken and results obtained by Dec 2024. | Ministry Finance | Enhance accountability | ST and MT |
13 | Following a broad consultative process, produce a Cabinet policy paper by June 2024 on options for establishing new management arrangements for the Employee Provident Fund that terminates direct CBSL management. | Ministry Finance | Reduce conflict of interest. | MT |
14 | Revise legislation, regulations, and process relating to financial sector oversight in the banking sector, including strengthening corporate governance for banks with government ownership by improving the selection of executives and Board members. | Central Bank of Sri Lanka | Strengthen oversight | ST |
15 | By December 2024, establish an on-line digital land registry, and publish, on a designated website, report on progress in implementing published Plan for registering/titling all state land. | Ministry Lands | Strengthen transparency | MT |
16 | Establish and implement a plan to expand the resources and skills available to the Judicial Services Commission in order to enhance their ability to carry out their function and define potential options for modifying governance arrangements in the Justice sector to strengthen oversight, monitoring, and proper sector development. | JSC/Ministry of Justice | Enhance rule of law | MT |
3 The recommendations are classified as ST – Short Term to be implemented in up to twelve months from the publication of this report, MT –Medium Term that may require 13-24 months from its publication. 4 With oversight on information provision by the Right to Information Commission.
Summary
The report underscores the absence of clear standards, deterrence mechanisms, and accountability for misappropriated public funds, which erode trust in the public sector and hinder dispute resolution. While an Anti-Corruption Act is in place, key institutions like the Commission to Investigate Allegations of Bribery and Corruption lack the authority to be effective. The GDA recommends additional measures, including modernizing Asset Recovery laws.
Among the priority actions, the GDA advises reevaluating the Strategic Development Projects Act and enacting a Public Procurement Law. The lack of transparency in beneficial ownership information poses conflicts of interest risks in awarding contracts. The report critiques current Anti-Money Laundering/Combating Financing of Terrorism approaches for their ineffectiveness since 2015.
Governance weaknesses in contract enforcement and property rights, along with corruption risks in state-owned land, hinder private sector development. The integrity of the judiciary has eroded, leading private parties to resort to illicit payments for dispute resolution. The recommendations are expected to shape governance policies, strengthen legal frameworks, and drive reform measures for Sri Lanka’s economic growth.
Hasitha Kasun Hapuarachchi
[Hasitha Kasun Hapuarachchi is a Colombo-based independent researcher specializing in economics. He holds a Bachelor of Economics special degree with first-class honors from Gujarat University in Ahmedabad, India. With a passion for understanding economic systems, Hasitha conducts research projects that provide insights into real-world economic phenomena. He remains up-to-date with the latest advancements in the field, actively contributing to academic debates and discussions. Hasitha’s exceptional analytical skills and comprehensive knowledge make him a respected and influential figure in economics.]