Sri Lanka’s IMF programme aimed to succeed by improving governance. Will it?

Colombo, June 9 (Verité Research) - On June 12, the IMF board will approve Sri Lanka’s third disbursement under the current program. However, Sri Lanka is still falling short on the governance improvements that are foundational for its economic recovery.

According to the latest update of the ‘IMF Tracker’ by Verité Research, Sri Lanka verifiably failed to meet 25% of the commitments due by the end of May 2024 under the program renewed in December 2023. Of the 63 commitments due, 32 were classified as ‘met’, 16 as ‘not met’, and 15 as ‘unknown’ – meaning data was not available to verify their status.

The prognosis of failing on governance comes from examining the 16 commitments that were ‘not met’. Seven of them were on financial management, six on financial transparency, and three on anti-corruption measures. Sri Lanka is failing to comply with the IMF program precisely in the areas diagnosed as the root causes of the economic crisis – problems of financial transparency, management, and corruption. Many of the unmet commitments at the second disbursement were also related to actions on transparency and anti-corruption.

The governance diagnostic assessment (GDA) led by the IMF, published in September 2023, was the first-ever IMF-led GDA for an Asian country. It also aligned closely with a separate GDA published by Sri Lanka’s civil society. The hope was that this 17th IMF program would decisively solve Sri Lanka’s economic woes by addressing the root causes of corruption and mal-governance. However, the lack of progress on these actions – which are now being repeatedly glossed over in program renewal – suggests that the IMF is not giving adequate weight to compliance with the governance commitments.

The standard fiscal measures to which the IMF has given higher weight are those that were present in the 16 previous IMF programs as well. What is distinctive about the current program is the focus on meaningful measures to improve transparency and anti-corruption. If these measures do not become the foundation of Sri Lanka’s economic recovery, it will be a missed opportunity, potentially leading to another IMF program within five years of completing the previous one.