IMF starts an in-depth governance diagnostic exercise on Sri Lanka, a first in Asia

The IMF is conducting an in-depth governance diagnostic exercise, which will assess corruption and governance vulnerabilities in Sri Lanka and provide prioritized and sequenced recommendations.

Sri Lanka will be the first country in Asia to undergo a governance diagnostic exercise by the IMF.

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"We look forward to further engagement and collaboration with stakeholders and civil society organizations on this critical reform area," the IMF staff mission said.

"We emphasize the importance of anti-corruption and governance reforms as a central pillar of the EFF-supported program —they are indispensable to ensure the hard-won gains from the reforms benefit the Sri Lankan people."

The authorities have committed to fundamentally improving public financial management and strengthening the anti-corruption legal framework in line with the United Nations Convention against Corruption.

"This includes both asset declaration and recovery. Asset declaration is going to be addressed in the near term under the anti-corruption law," Masahiro Nozaki, Mission Chief for Sri Lanka told reporters.

"The asset recovery part takes a little bit more time and that is going to be addressed by March 2024. On top of that the governance diagnostics will further recommend specific reforms in the anti-corruption area."

The diagnostic report will be published by September 2023 (structural benchmark). The report’s findings will help identify specific priority and time-bound reforms to be implemented under the program.

Speaking about recent tax changes, the mission added that these tax reforms under the program are designed to be progressive, that is, ensuring greater contributions from high-income earners.

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Efforts to increase tax revenues should be pursued in a growth-friendly manner while protecting the poor and most vulnerable, the mission added.

The reform program supported under the EFF arrangement is built on the following strong policy measures and prioritizes:

(i) an ambitious revenue-based fiscal consolidation, accompanied by stronger social safety nets, fiscal institutional reforms, and cost-recovery based energy pricing to ensure the state’s ability to support all its essential expenditures;

(ii) restoration of public debt sustainability, including through a debt restructuring to ensure stable financing of the government’s operations;

(iii) a multi-pronged strategy to restore price stability and rebuild reserves under greater exchange rate flexibility in order to alleviate the burden of inflation, particularly on the poor, to foster an environment of investment and growth, and to ensure Sri Lanka's ability to purchase essential goods from abroad;

(iv) policies to safeguard financial sector stability to ensure that the financial sector can play its key role in supporting economic growth; and

(v) structural reforms to address corruption vulnerabilities and enhance growth.


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