By Rathindra Kuruwita – Associate Fellow SAFN

Several Sri Lankan civil society organizations, led by Transparency International Sri Lanka (TISL), published a Governance Diagnostic Report on Sri Lanka on September 13 in Colombo. This document is publicized at a time when there is a great demand on Sri Lankan government to tackle bribery and corruption in the country, which many believe led to the economic woes of the nation.

In 2022, Sri Lanka went through its worst economic crisis since independence. The country defaulted for the first time in its history. People died waiting for fuel and cooking gas.

While the reason for the crisis is myriad, the disastrous economic policies of Gotabaya Rajapaksa, who was an amateur to politics and governance, were the trigger for the crisis.

There is now a semblance of normalcy, almost after a year under the new administration under President Ranil Wickremesinghe. A deal with the IMF has been struck, and the global lender is happy with the reform agenda of the government. Sri Lanka’s relationship with the West and India has been restored while not alienating China. The country’s reserves, which were hovering around 1.6 billion are now over 3.8 billion. Over 900,000 tourists arrived in Sri Lanka by late August and the remittance by Sri Lankans working abroad are reaching pre-pandemic levels. The interest rates hike, imposed in April 2022 to reduce high inflation, has been lowered. The government and its allies are positive about the IMF releasing the second tranche of the loan.

“About 70 percent of Sri Lankan families have reduced their consumption of food. The health and education sector, the pride of Sri Lanka, are on the verge of collapse..”

However, this ‘normalcy’ is superficial. About 70 percent of Sri Lankan families have reduced their consumption of food. The health and education sector, the pride of Sri Lanka, are on the verge of collapse due to lack of capital expenditure and brain drain. Many Small and Medium scale enterprises are in trouble and unemployment is high. Last week the Central Bank of Sri Lanka (CBSL) announced that it has decided to subject the island nation’s largest pension scheme, Employees Provident Fund (EPF), to the government’s domestic debt optimization (DDO) option with a long-term view in the best interest of the members. EPF beneficiaries are the country’s private sector workers, who deposit a portion of their salary along with a contribution from the employees with the pension fund. They get a lump sum payment once they retire, and over the years there have been complaints that the governments have been misusing the EPF money. By accepting the terms of the DDO, the EPF will receive nine percent as interest for their funds. Critics have pointed out that this is well below the market rate for government bonds. The government decided to exclude the banking system is excluded from the DDO and critics have insisted that due to this those who benefited from the disastrous economic policies of Gotabaya Rajapaksa administration have not been affected by DDO.

Most Sri Lankans blame their current predicament on high levels of bribery and corruption, as well as the lack of accountability by politicians and senior bureaucrats. Corruption in Sri Lanka, especially under the tenure of the Rajapaksas, had reached such astronomical levels. For years, the Sri Lankan civil society had been demanding stringent anti-corruption laws and the need for such laws have been recognized by the IMF. The Sri Lankan parliament passed an anti-corruption law recently. However, most Sri Lankans do not trust that the government would use the legislation to punish the big fish.

“Corruption in Sri Lanka, especially under the tenure of the Rajapaksas, had reached such astronomical levels.. However, most Sri Lankans do not trust that the government would use the legislation to punish the big fish.“

Given this context, the Civil Society Governance Diagnostic Report on Sri Lanka is an attempt to develop solutions to high-level corruption and lack of democratic accountability that is afflicting the future economic prospects of the country. The report, compiled after interviewing over 250 people representing all stakeholders, criticizes the excessive emphasis on addressing Sri Lanka’s crisis as a balance of payments problem. The CSO’s believe it was the larger governance crisis that caused the debt and economic emergency in Sri Lanka. The emphasis on addressing Sri Lanka’s crisis as a balance of payments problem prevents meaningful dialogue on the social cost and repercussions of the proposed economic recovery program, the report says.

“The report proposes 34 measures and they encompass a comprehensive plan to enhance transparency, accountability, and governance in Sri Lanka within different timeframes.“

The report proposes 34 measures and they encompass a comprehensive plan to enhance transparency, accountability, and governance in Sri Lanka within different timeframes. In the immediate term (0-6 months), the focus lies on fiscal responsibility and transparency, including maintaining a fiscal transparency platform, publishing annual expenditure reports, and implementing the Fiscal Management Act. Additionally, efforts are directed towards reducing corruption, addressing political interference in the public service, and ensuring transparent handling of financial transactions and procurement. Short-term measures (up to 12 months) aim to improve macro-political-economic stability by amending tax-related legislation, implementing tobacco control measures, and achieving reductions in tax exemptions. These actions are complemented by strengthening oversight mechanisms, conducting special audits, and enhancing transparency in state enterprises and military expenditures. In the medium term (up to 24 months), structural changes are proposed, such as passing legislation on asset recovery in compliance with UNCAC, establishing an independent corruption prosecution office, and addressing housing and livelihood issues in specific regions. Furthermore, reforming the Constitutional Council’s composition aims to ensure a higher ratio of non-political representatives, fostering a more balanced and accountable governance system in Sri Lanka. Overall, these measures seek to create a more transparent, accountable, and stable governance framework in the country, fostering trust and progress.

“.. without pressure from international and domestic partners, it is likely that this report and the anti-corruption legislation that has been passed will not address the country’s governance issues.”

However, their effectiveness will depend on the commitment and cooperation of government institutions, and international partners in ensuring their enforcement and monitoring. Without government buy in, and without pressure from international and domestic partners, it is likely that this report and the anti-corruption legislation that has been passed will not address the country’s governance issues.

Author – Rathindra Kuruwita is an Associate Fellow at SAFN. He is a journalist and a researcher from Colombo, Sri Lanka. He holds a MSc in Strategic Studies from S. Rajaratnam School of International Studies, NTU, Singapore. He was also a fellow at Daniel K. Inouye Asia-Pacific Center for Security Studies, USA, and a participant of the International Visitor Leadership Program (IVLP) conducted by the U.S. Department of State. He writes on security and international relations to several publications and has written extensively on the Sri Lanka-China relationship.