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Sri Lanka’s IMF programme was supposed to succeed by improving governance. Will it?
On June 12, the IMF board will sign off on Sri Lanka’s third disbursement under the current programme. But Sri Lanka is still failing 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 programme 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 the status. The prognosis of failing on governance comes from examining the 16 commitments that were ‘not met’. 7 of them were on financial management, 6 on financial transparency, and 3 on anti-corruption measures. Sri Lanka is failing to comply with the IMF programme precisely on the aspects that were diagnosed as the root causes of the economic crisis – problems of financial transparency, management and corruption. Many of the commitments not complied with 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 programme would decisively solve Sri Lanka’s economic woes by dealing with the root causes of corruption and mal-governance. However, the lack of progress on these actions – which are now being repeatedly glossed over in programme renewal – suggests that the IMF is not giving adequate weightage to compliance with the governance commitments. The standard fiscal measures to which the IMF has given higher weightage are those that were present in the 16 previous IMF programmes as well. What is distinctive about the current programme 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 that then fosters the cycles of the past – which is to return Sri Lanka to yet another IMF programme within five years of completing the previous. Case example of serial default on governance commitments The staff-level agreement signed in September 2022 committed Sri Lanka to “An online transparency platform publishing on a semi-annual basis (i) all significant public procurement contracts, (ii) a list of all firms receiving tax exemptions through the Board of Investment, and (iii) a list of individuals and firms receiving tax exemptions on luxury vehicle imports” by March 2023. Sri Lanka did not comply, even by the end of November 2023. In December last year, when the programme was renewed, this commitment scope was restated as “Publish on a semi-annual basis on a designated website (i) all public procurement contracts above Rs. 1 billion, along with comprehensive information in a searchable format on contract award winners; (ii) a list of all firms receiving tax exemptions through the Board of Investment and the SDP, and an estimation of the value of the tax exemption; and (iii) a list of firms receiving tax exemptions on luxury vehicle import” and it was elevated in importance by designating it a structural benchmark that should be completed by the end of December 2023. However, by the end of May 2024, Sri Lanka was still in serious breach of this long overdue commitment.
Featured Insight
Sri Lanka’s IMF programme was supposed to succeed by improving governance. Will it?
On June 12, the IMF board will sign off on Sri Lanka’s third disbursement under the current programme. But Sri Lanka is still failing 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 programme 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 the status. The prognosis of failing on governance comes from examining the 16 commitments that were ‘not met’. 7 of them were on financial management, 6 on financial transparency, and 3 on anti-corruption measures. Sri Lanka is failing to comply with the IMF programme precisely on the aspects that were diagnosed as the root causes of the economic crisis – problems of financial transparency, management and corruption. Many of the commitments not complied with 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 programme would decisively solve Sri Lanka’s economic woes by dealing with the root causes of corruption and mal-governance. However, the lack of progress on these actions – which are now being repeatedly glossed over in programme renewal – suggests that the IMF is not giving adequate weightage to compliance with the governance commitments. The standard fiscal measures to which the IMF has given higher weightage are those that were present in the 16 previous IMF programmes as well. What is distinctive about the current programme 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 that then fosters the cycles of the past – which is to return Sri Lanka to yet another IMF programme within five years of completing the previous. Case example of serial default on governance commitments The staff-level agreement signed in September 2022 committed Sri Lanka to “An online transparency platform publishing on a semi-annual basis (i) all significant public procurement contracts, (ii) a list of all firms receiving tax exemptions through the Board of Investment, and (iii) a list of individuals and firms receiving tax exemptions on luxury vehicle imports” by March 2023. Sri Lanka did not comply, even by the end of November 2023. In December last year, when the programme was renewed, this commitment scope was restated as “Publish on a semi-annual basis on a designated website (i) all public procurement contracts above Rs. 1 billion, along with comprehensive information in a searchable format on contract award winners; (ii) a list of all firms receiving tax exemptions through the Board of Investment and the SDP, and an estimation of the value of the tax exemption; and (iii) a list of firms receiving tax exemptions on luxury vehicle import” and it was elevated in importance by designating it a structural benchmark that should be completed by the end of December 2023. However, by the end of May 2024, Sri Lanka was still in serious breach of this long overdue commitment.
Featured Insight
Sri Lanka’s IMF programme was supposed to succeed by improving governance. Will it?
On June 12, the IMF board will sign off on Sri Lanka’s third disbursement under the current programme. But Sri Lanka is still failing 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 programme 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 the status. The prognosis of failing on governance comes from examining the 16 commitments that were ‘not met’. 7 of them were on financial management, 6 on financial transparency, and 3 on anti-corruption measures. Sri Lanka is failing to comply with the IMF programme precisely on the aspects that were diagnosed as the root causes of the economic crisis – problems of financial transparency, management and corruption. Many of the commitments not complied with 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 programme would decisively solve Sri Lanka’s economic woes by dealing with the root causes of corruption and mal-governance. However, the lack of progress on these actions – which are now being repeatedly glossed over in programme renewal – suggests that the IMF is not giving adequate weightage to compliance with the governance commitments. The standard fiscal measures to which the IMF has given higher weightage are those that were present in the 16 previous IMF programmes as well. What is distinctive about the current programme 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 that then fosters the cycles of the past – which is to return Sri Lanka to yet another IMF programme within five years of completing the previous. Case example of serial default on governance commitments The staff-level agreement signed in September 2022 committed Sri Lanka to “An online transparency platform publishing on a semi-annual basis (i) all significant public procurement contracts, (ii) a list of all firms receiving tax exemptions through the Board of Investment, and (iii) a list of individuals and firms receiving tax exemptions on luxury vehicle imports” by March 2023. Sri Lanka did not comply, even by the end of November 2023. In December last year, when the programme was renewed, this commitment scope was restated as “Publish on a semi-annual basis on a designated website (i) all public procurement contracts above Rs. 1 billion, along with comprehensive information in a searchable format on contract award winners; (ii) a list of all firms receiving tax exemptions through the Board of Investment and the SDP, and an estimation of the value of the tax exemption; and (iii) a list of firms receiving tax exemptions on luxury vehicle import” and it was elevated in importance by designating it a structural benchmark that should be completed by the end of December 2023. However, by the end of May 2024, Sri Lanka was still in serious breach of this long overdue commitment.
Featured Insight
Sri Lanka’s IMF programme was supposed to succeed by improving governance. Will it?
On June 12, the IMF board will sign off on Sri Lanka’s third disbursement under the current programme. But Sri Lanka is still failing 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 programme 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 the status. The prognosis of failing on governance comes from examining the 16 commitments that were ‘not met’. 7 of them were on financial management, 6 on financial transparency, and 3 on anti-corruption measures. Sri Lanka is failing to comply with the IMF programme precisely on the aspects that were diagnosed as the root causes of the economic crisis – problems of financial transparency, management and corruption. Many of the commitments not complied with 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 programme would decisively solve Sri Lanka’s economic woes by dealing with the root causes of corruption and mal-governance. However, the lack of progress on these actions – which are now being repeatedly glossed over in programme renewal – suggests that the IMF is not giving adequate weightage to compliance with the governance commitments. The standard fiscal measures to which the IMF has given higher weightage are those that were present in the 16 previous IMF programmes as well. What is distinctive about the current programme 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 that then fosters the cycles of the past – which is to return Sri Lanka to yet another IMF programme within five years of completing the previous. Case example of serial default on governance commitments The staff-level agreement signed in September 2022 committed Sri Lanka to “An online transparency platform publishing on a semi-annual basis (i) all significant public procurement contracts, (ii) a list of all firms receiving tax exemptions through the Board of Investment, and (iii) a list of individuals and firms receiving tax exemptions on luxury vehicle imports” by March 2023. Sri Lanka did not comply, even by the end of November 2023. In December last year, when the programme was renewed, this commitment scope was restated as “Publish on a semi-annual basis on a designated website (i) all public procurement contracts above Rs. 1 billion, along with comprehensive information in a searchable format on contract award winners; (ii) a list of all firms receiving tax exemptions through the Board of Investment and the SDP, and an estimation of the value of the tax exemption; and (iii) a list of firms receiving tax exemptions on luxury vehicle import” and it was elevated in importance by designating it a structural benchmark that should be completed by the end of December 2023. However, by the end of May 2024, Sri Lanka was still in serious breach of this long overdue commitment.
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Insights and analysis of government revenue.
Will the Increase in Cigarette Taxes Meet Budgeted Revenue?
On the 1st of Jan 2023, the government increased excises taxes on cigarettes by 20% as follows: Size Old Excise Tax per Cigarette New Excise Tax per Cigarette...
From The PF Wire
Source:
Daily Mirror
CEB reports turnaround performance in 3Q despite t...
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Source:
Daily Mirror
Excise Duty on Liquor, Wine, Beer and Fags up by 2...
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Source:
Daily News
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Insight on Revenue
Taxing the Digital Economy
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The draft version of the Colombo Port Cit...
Decline in government revenue for 2020
According to the Central Bank Annual Report for 2020, government reven...
Taxes on Motor Vehicle Imports
Last year the government placed import restrictions on motor vehicles. How did this aff...
Deviation of Actual vs. Estimated Revenu...
The Fiscal Management Report released recently shows that Tax Revenue between Jan – Aug 202...
Summary of Fiscal Indicators, 1950 to 20...
The following chart displays the government revenue and expenditure...
Government Revenue in 2020 – Not Suffici...
According to the Ministry of Finance, government revenue is expected t...
Tax Impacts of Import Restrictions
Between Apr...
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Featured
Will the budget's veil of secrecy be lifted in 202...
The lack of transparency on the implementation progress of proposals in budget speeches has increased sharply in 2022 and 2023, according to a systematic evaluation conducted by Verité Research.
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Debt Digest - March 2023
This article was compiled by Dr. Nishan de Mel and Professor Udara Peiris. Dr. Nishan de Mel is the Executive Director of Verité Research and an eco...
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Sri Lanka’s new personal income tax structure redu...
In his recent address to Parliament, the President announced proposed reforms to Sri Lanka’s Personal Income Tax (PIT) system. These changes include raising the tax-free monthly income threshold from LKR 100,000 to LKR 150,000, a...
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