IMF Shows It Cares More Than Government

By Jehan Perera –

The oft repeated comparison between the economic and political chaos that prevailed before President Ranil Wickremesinghe took office and the stability thereafter is wearing thin. Mahatma Gandhi’s observation that preaching to a hungry man is not effective is becoming increasingly relevant in the present context in which government leaders and their supporters claim that conditions in the country are improving. This claim is giving rise to an argument that is subtly and not-so-subtly being made that elections at this time could pose a danger to these gains. But the reality on the ground contradicts these assertions. The economy has been shrinking from the time of the Aragalaya to the present. The economy has yet to make the turn. In the last quarter it shrank by 3 percent, adding to the 11 percent shrinkage the previous quarter. This was on top of the 7 percent shrinkage in the last year.

The reality on the ground is that people are continuing to lose jobs as businesses close. With businesses downsizing or closing, and the job market shrinking, people have less money in their hands. Even these lesser amounts are being further reduced due to the 10 percent price increases in petrol, diesel and cooking gas that took place last week which will have ripple effects on the entire economy. There is now the prospect of a 20 percent increase in the price of electricity, which went up by 100 to 200 percent in the past year, just like petrol, diesel and cooking gas. The World Bank has stated that the poverty level in the country, which was 13 percent before the economic crisis is 25 percent today, and is expected to rise to 28 percent in the coming year. The tragedy of the current situation, which cannot be glossed over by strong denials, is that heavy burdens are being cast on those who cannot afford to make ends meet to match government expenditures with revenues. 

Despite these sacrifices the people are making, the IMF has informed the government that it is not collecting enough revenue and needs to meet the commitments it has made to get the second installment of the IMF loan. As a result, both direct and indirect taxes are likely to increase further squeezing those who have already been squeezed to their limit. The majority who are now paying their taxes were people who were barely able to cover their expenses prior to the tax hikes. They find they cannot pay any more. It appears that the IMF is not targeting them for higher taxes. The problem is that the government is not taxing a wide swathe of the wealthiest sectors of the population and not putting a stop to corruption and tax fraud. These include not only the banks and big registered businesses, it also includes politicians, commission agents, drug dealers and unregistered businesses.

IMF Report

An indicator of the high level of uncontrollable corruption in the government at present can be seen in the ongoing saga over the health system. For months now the country’s top medical and health professionals have been complaining about the shortages of medicines and substandard medicines purchased at higher than market prices. But to no avail. There have been bland denials by the health authorities and the acts of corruption continue if media reports and statements by medical and health professionals are to be believed. Recently there was even a vote of no-confidence against the Health Minister which was defeated by the government using its majority in parliament. Instead of dealing with the problem and resolving it for the sake of the people who use the state health system, there are denials. It appears that those in the government have lost their conscience. Where there is no internal check and balance it needs to come externally and this appears to be happening in the form of the IMF and international community on which Sri Lanka is increasingly dependent for a bailout package.

The IMF has recommended sixteen priority actions in its recently released Governance Diagnostic Assessment (GDA) on Sri Lanka to address systematic and severe governance weaknesses and deep-rooted corruption vulnerabilities across State functions. According to the statement the IMF released, “The technical assistance report released last week revealed widespread corruption vulnerabilities and governance weaknesses originating from ad-hoc tax policy practices, half-baked approaches to Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT), lack of a robust legal framework and poor processes utilized in SOEs, the absence of public procurement legislation, ad-hoc tax policy practices frequently modifying tax laws, conflict of interest concerns of Central Bank managing EPF and regulating NBIFs, and absence of clear mechanisms for information sharing among tax authorities.”  The report also pointed out that “the authorities were yet to take action on recovering stolen funds.”

The IMF also stated “Current governance arrangements have not established clear standards for permissible official behavior, acted to deter and sanction transgressions, nor pursued individuals and stolen public funds that have exited the country. Regular civil society participation in oversight and monitoring of government actions is restricted by limited transparency, the lack of platforms for inclusive and participatory governance, and by the broad application of counter-terrorism rules. GDA stressed that the impunity for misbehaviour enjoyed by officials continues to undermine trust in the public sector and compounds concerns over limited access to an efficient and rule-based adjudication process for resolving disputes and hurts the integrity of the judiciary.”

Regain Support

Sri Lanka is today at risk of losing support from the international community. IMF support cannot be taken for granted any more. It requires major changes in governance, or at least evidence of a start in that direction. One of the IMF requirements is that the new Anti Corruption law should be implemented. President Ranil Wickremesinghe who met USAID Administrator Samantha Power on the sidelines of the United Nations General Assembly (UNGA) sessions in New York said that tackling corruption would take time. He noted that the Anti-Corruption Commission is currently grappling with the task of recruiting staff with formal training. Given this circumstance, it is anticipated that it will require an additional year to realize the anticipated outcomes of the anti-corruption law adoption, making the timeline for achievement approximately two years. This is too late when the IMF is demanding change now. The Bribery Act of 1954 was amended in 1994 leading to the establishment of the Bribery Corruption Commission. Unfortunately, no substantial progress has been made during the past 30 years. It is not surprising that many of our parliamentarians, some of whom are currently in the House, were unable to recruit staff with formal and professional training. 

The government’s response to the multiple crises affecting the country is to deny them. President Ranil Wickremesinghe’s interview with DW German Television saw him get into confrontation with the interviewer who asked him questions about the most serious problems facing the country. These included the issue of child malnutrition, human rights violations of the past and the investigations into the truth of the Easter bombing. The president had to defend the indefensible. The government’s answer is to push ahead with two proposed laws that are currently before parliament– the Anti Terrorism Bill and the Online Safety Bill which will give the government more power to suppress the rights of free expression and the right to protest. 

The tragic reality for Sri Lanka today is that the parliamentary majority who form the government appear to be in no mood to be held accountable for economic or war crimes as the IMF and UN Human Rights Council are urging. In these circumstances, the next installments of the IMF loan and the EU’s GSP plus tax relief will become more difficult to access, and may even be lost to the further detriment of the country and its people. If the majority in parliament are unwilling to follow the reformist path that the president needs to follow, he should consider dissolving such a recalcitrant parliament without further delay so that he has a new and less corrupt team of elected representatives of the people to work with to lead Sri Lanka to the IMF’s second tranche and more.

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