IMF says tackling corruption in Sri Lanka will require major reforms

The International Monetary Fund (IMF) says tackling corruption in Sri Lanka will require major reforms.

The IMF’s First Deputy Managing Director, Gita Gopinath, said that implementing the government’s action plan on governance reforms is critical.

“While much has been done to reduce external debt, domestic debt is still high and steadfast implementation of sound fiscal policy is critical to continue bringing it down,” she said while speaking at a conference on “Sri Lanka’s Road to Recovery: Debt and Governance” held at the Shangri-La Hotel in Colombo, Monday.

Speaking further, Gopinath said that the crisis in Sri Lanka was precipitated by years of declining tax revenues, depleted foreign exchange reserves and an explosive and unsustainable increase in public debt as growth collapsed.

There were long lines for fuel, severe shortages of basic goods, record inflation, and widespread power outages. For many households, daily life became an exercise in hardship.

“Today, thanks to bold reforms and the commitment of the Sri Lankan people, substantial progress has been made to restore macroeconomic stability and reduce hardships faced by people. Fuel, cooking gas, and medicines are available again. Inflation has been brought under control and economic growth has returned—expanding by 5 percent in 2024. On the fiscal front, the government has achieved an extraordinary adjustment and tax revenues have increased by more than two-thirds as a share of GDP,” she added.

She also said that the Government has put a strong emphasis on improving governance, which is fundamental for establishing trust with citizens and ensuring sustained growth.

“Important milestones have been achieved including central bank independence, improving public financial management, and strengthening the legal framework for anti-corruption. Our analysis shows that comprehensive fiscal governance and accountability reforms in Sri Lanka can boost GDP by more than 7 percent and reduce the debt-to-GDP ratio by more than 6 percentage points over 10 years,” Gopinath said.

Gopinath said that Sri Lanka’s bonds are once again included in global indices, and its credit rating has improved.

“The Sri Lankan debt restructuring experience provides several lessons that will help make the process simpler for other countries that need restructuring in the future. Sri Lanka’s experience better illuminated the trade-offs in setting debt targets and directly led to the development of improved methodologies for evaluating state contingent features in debt contracts. It helped creditors learn how to improve coordination and gave them new instrument designs to contemplate. Together with other recent restructuring cases, it helped motivate important reforms to IMF’s debt policies,” she added.

She asserted that non of the achievements thus far would have been possible without the courage and sacrifice of the Sri Lankan people.