Sri Lanka’s economic recovery faces a hurdle as a critical review by the International Monetary Fund (IMF) approaches. Verité Research, a prominent Sri Lankan think-tank, raises concerns about the country’s progress on governance reforms, a cornerstone of the IMF program.
In a report titled “IMF Tracker,” Verité Research reveals that Sri Lanka has demonstrably failed to meet 25% of the program’s commitments for improved governance by the end of May 2024. Out of 63 commitments, only 32 were classified as “met,” with 16 marked as “not met” and a concerning 15 falling under “unknown,” indicating a lack of transparency in the process.
The most concerning aspect lies in the reasons for these failures. Verité Research identifies financial management, financial transparency, and anti-corruption measures – all key areas pinpointed by the IMF as root causes of Sri Lanka’s economic crisis – as the most neglected commitments.
This lack of progress is particularly troubling considering the emphasis placed on governance reforms in the current IMF program. A first-of-its-kind “governance diagnostic assessment” (GDA) conducted by the IMF in 2023 aimed to address the underlying issues of corruption and mismanagement. Verité Research highlights the missed opportunity, noting that a focus on these reforms could have broken the cycle of Sri Lanka repeatedly resorting to IMF programs.
The report suggests that the IMF may not be placing enough weight on governance improvements, prioritizing standard fiscal measures that have been part of past programs. Verité Research emphasizes that without addressing the core issues of transparency and anti-corruption, Sri Lanka risks ending up back in the same position within a few years.
The upcoming review by the IMF Executive Board on June 12th, 2024, will be crucial. Sri Lanka must demonstrate a stronger commitment to tackling governance challenges if it hopes to secure the third tranche of IMF funding and achieve a sustainable economic recovery.