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IMF/Sri Lanka: Address Economic Rights, Corruption in Loans

Assistance Should Promote Strong Social Safety Net, Rule of Law

Sri Lankans wait in line with their empty gas cylinders near a gas shop in Colombo, Sri Lanka, April 1, 2022. © 2022 Tharaka Basnayaka/NurPhoto via AP

(Washington, DC) – Any future International Monetary Fund (IMF) program in Sri Lanka should protect the human rights of low-income people, and address corruption and entrenched obstacles to the rule of law, Human Rights Watch said in a letter to the IMF. The economic crisis in the country has caused acute shortages of essential goods including medicines, a crippling lack of fuel and electricity, spiralling inflation, and desperate hardship for millions of people.

On March 31, 2022, the IMF confirmed it will soon begin talks with Sri Lanka about a potential loan program. Major economic problems in the country have led in recent weeks to growing protests in Colombo, the capital, and across the country, highlighting the critical need for IMF support. President Gotabaya Rajapaksa declared a state of emergency on April 1, then imposed a 36-hour curfew and blocked social media in an attempt to curb protests, in which scores have been arrested. The government should respond to the protests in accordance with international human rights standards, which prohibit the use of unnecessary or excessive force.

“The protests roiling Sri Lanka are a clear message about many people’s economic situation,” said Sarah Saadoun, senior researcher focusing on poverty and inequality at Human Rights Watch. “The IMF and the Sri Lankan government should come to an agreement that supports people’s ability to afford life necessities and addresses the problems underlying the current crisis.”

In February, the IMF issued an Article IV report, which includes policy advice on how the Sri Lankan government should address the current crisis. The report laid out a plan for significant fiscal consolidation, achieved in part by increasing income and value-added tax rates, removing energy subsidies, and “rationalizing” the public wage bill. It recognized that these adjustments would have adverse impacts on low-income people and said that the government should mitigate the impact by strengthening social safety nets “by increasing spending [and] widening coverage.”

The IMF and the government should give priority to ensuring adequate investment in social protection programs before making any adjustments that would raise the cost of living, Human Rights Watch said. The World Bank estimates that 11.7 percent of people in Sri Lanka earn less than US$3.20 per day, the international poverty line for lower-middle income countries, up from 9.2 percent in 2019. The World Bank also assessed that “[l]ess than half of the poor were beneficiaries of Samurdhi,” Sri Lanka’s social safety net program, “and benefit amounts remain largely inadequate.”

While inflation reached over 18 percent in March, severely exacerbating economic hardship, the value of the Sri Lankan rupee has rapidly declined, making imported necessities, including medicines, sanitary products, food, and fuel, scarce or unaffordable for many people.

Recent government decisions raise concerns about whether adequate funds will be allocated for social investment. In the 2022 budget, the Defense Ministry received the highest allocation at 373.1 billion rupees (then US$1.86 billion), an increase from the previous year, amounting to 14.89 percent of total expenditure. The Health Ministry was allocated less than half that, 158 billion rupees (then US$790 million), a decrease from the previous year despite the Covid-19 pandemic. Some parts of the defense budget are excluded from civilian oversight, including intelligence services that have been implicated in serious abuses. These include surveillance and arbitrary arrests of families of rights victims and civil society activists.

In recent years, the IMF has given increasing importance to combatting corruption, recognizing that “[e]ntrenched corruption undermines sustainable and inclusive economic growth.” It is especially urgent for the IMF to include reforms to address corruption in Sri Lanka. The Rajapaksa administration, which took office in 2019, has repeatedly acted to block financial transparency and accountability by weakening independent institutions and by intervening to prevent investigations and prosecutions in high-profile cases.

The 20th amendment to the Sri Lankan Constitution, adopted in 2020, undermined the independence of the judiciary, as well as key institutions including the National Audit Office and the Commission to Investigate Allegations of Bribery or Corruption. Numerous prominent corruption cases have been withdrawn by the commission or the attorney general, or dismissed by the courts.

The Rajapaksa administration has aggressively sought to suppress civil society with intense surveillance of activists and nongovernmental organizations, reducing the public’s ability to hold the government to account.

Recommendations by Human Rights Watch to the IMF include:

  • Assess the expected direct and indirect impacts of any adjustments on low-income people in Sri Lanka, in line with the social spending strategy adopted by the IMF in 2019, and ensure that these are adequately mitigated, such as by increased investment in well-designed social protection programs.
  • Include a social spending floor as performance criteria and ensure that it adequately mitigates any impacts of adjustments before they are carried out, and that it enables investment in social protection to adequately protect people’s economic rights.
  • Implement progressive tax measures that do not further burden people living in poverty.
  • Urge the government to put in place policies to increase women’s access to employment by reducing barriers, including by providing state-funded maternity leave and access to affordable menstrual hygiene.
  • Include reforms to restore the independence of institutions, including the judiciary, auditor general, attorney general, and the Commission to Investigate Allegations of Bribery or Corruption, which are key for economic growth and fighting corruption.
  • Require the Sri Lankan government to restore independent investigations into corruption allegations and prosecute those found responsible.

“Sri Lanka needs economic help, but to be effective the IMF program needs to be robustly negotiated and properly carried out,” Saadoun said. “Reforms should ease people’s economic hardship, not exacerbate it.”

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