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Re: Economic Crisis in Sri Lanka

Dear Dr. Kristalina Georgieva,

We are writing to you regarding Sri Lanka, where many people are facing desperate hardship due to the country’s economic crisis.

Human Rights Watch is an international nongovernmental organization that works in nearly 100 countries to monitor human rights, including economic and social rights. We have worked on Sri Lanka for over three decades, documenting serious violations by both sides during the 26-year civil war, including its impact on families that were repeatedly displaced and lost access to livelihoods. Since the war ended in 2009, despite international commitments,[1] successive Sri Lankan governments have undermined independent institutions including the judiciary and constitutional bodies crucial for effective and transparent governance. These trends have worsened since President Gotabaya Rajapaksa took office in 2019. We have documented numerous cases of the government targeting minority communities, including the ethnic Tamil population, which has long been economically marginalized. The administration has also adopted measures that undermine the rule of law.

We understand that the government is in talks with the International Monetary Fund (IMF) to support the country through the current economic crisis. In that context, we welcome the IMF’s emphasis on “protecting vulnerable groups.” We also welcome the IMF’s attention to strengthening governance and reducing corruption vulnerabilities, which is of central importance to the situation in Sri Lanka. As the enhanced framework on governance and corruption notes, “[e]ntrenched corruption undermines sustainable and inclusive economic growth.”[2]

We urge you to ensure that effective measures to address these concerns are negotiated prior to the commencement of any new program in Sri Lanka and are implemented early in any program. As the experience of the 2016-19 program shows, reforms that are left for later are unlikely to be implemented. Central bank independence was then a keystone of the Fund’s approach. However, the promised Central Bank Act was never adopted, finally being scrapped by the current government in June 2021.[3]

We would like to take this opportunity to offer some recommendations that should be incorporated in any IMF program in Sri Lanka to protect the rights, lives, and livelihoods of all Sri Lankans.

Mitigating the Impact of the Economic Crisis on Low-Income People

Several of the adjustments proposed in the 2021 Article IV report to address Sri Lanka’s economic crisis would have direct and indirect impacts on low-income people. The report envisions significant fiscal consolidation, achieved in part by increasing income and value-added tax rates, removing energy subsidies, and “rationalizing” the public wage bill. Recognizing the impacts of these adjustments, the report rightly calls on the government “to mitigate the adverse impacts of macroeconomic adjustment on vulnerable groups.” Specifically, “[s]ocial safety nets should be strengthened, by increasing spending [and] widening coverage.”[4]

It is crucial that any program makes this a priority. 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.[5] Since the current crisis accelerated, the poverty rate is undoubtedly much worse. The Bank also assessed that “[l]ess than half of the poor were beneficiaries of Samurdhi,” Sri Lanka’s social safety net scheme, “and benefit amounts remain largely inadequate.”[6]

Recent budget decisions raise concerns that inadequate funds would be allocated to social investment. In the Appropriation Bill for 2022, presented by Finance Minister Basil Rajapaksa on October 7, 2021, the Defense Ministry received the highest allocation at 373.1 billion rupees (then US$1.86 billion), an increase from the previous year of 33.8 billion rupees, to reach 14.9 percent of total expenditure.[7] The Health Ministry was allocated 158 billion rupees (then $790 million), a decrease from the previous year of 871 million rupees despite the Covid-19 pandemic.[8]

To ensure that a policy to increase social spending is implemented, the IMF should set a social spending floor as performance criteria, not merely an indicative target, and define the floor so as to ensure that it will contribute to offsetting the costs of any adjustments. The Fund’s 2019 strategy on social spending expects staff to “analyze and, as appropriate, document the social impact of adjustment and measures to protect the vulnerable.”[9] Yet few programs have included such an analysis. We urge the Fund to include this in any Sri Lanka program from its inception to ensure that the social spending floor included in any program is adequate to prevent, at a minimum, retrogression of people’s economic rights.

We also support the IMF’s recommendation to increase female labor force participation. Research has shown that lack of access to state-funded maternity leave is a leading cause of women’s exclusion from the workforce.[10] Other research has shown that a lack of access to affordable menstrual hygiene products is a barrier to women’s participation not only in employment, but also education.[11]

As the recent Article IV report shows, Sri Lanka’s tax-to-GDP ratio is among the lowest in the world.[12] Among the huge tax cuts introduced by the current government shortly after entering office, cuts to income taxes benefitted the wealthiest households. While the Article IV report proposes raising income tax rates, it also proposes increases to VAT, which disproportionately burdens low-income families because it consumes a larger share of their income. Moreover, if steps are taken to reduce or remove fuel subsidies, it is critical that this is done in a progressive manner or with an adequate compensatory system to ensure affordability for low-income people in advance of the reforms.

Key Recommendations:

  • Ensure that social protection programs are adequately expanded to mitigate the cost of any adjustments. This includes assessing the impact of adjustments, setting adequate social spending floors as Performance Criteria, and appropriately defining floors.
  • Support higher social spending by the government, and require evaluations based on performance.
  • Urge policies to increase women’s access to employment by reducing barriers, including by providing state-funded maternity leave and access to affordable menstrual hygiene.
  • Implement progressive tax measures that do not further burden people living in poverty.
  • Implement any reduction or removal of subsidies in a progressive manner or with an adequate compensatory system to ensure affordability for low-income people in advance of reforms.

Corruption and Accountability

Sri Lanka is ranked 102nd on Transparency International’s most recent Corruption Perceptions Index, having fallen from 93rd in 2019.[13] The Article IV report recommends that “[e]fforts to strengthen governance and reduce corruption vulnerabilities should continue.”[14] This belies the reality that the Gotabaya Rajapaksa administration has repeatedly acted to block financial transparency and accountability by weakening independent institutions and by intervening to prevent investigations and prosecutions.

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 (CIABOC), by giving the president unfettered control of appointments of senior judges and officials.[15] The amendment also removed the Auditor General’s constitutional authority to audit the Prime Minister’s Office and the Presidential Secretariat, and removed the constitutional status of the CIABOC, meaning it can be abolished by a simple majority in parliament. These changes make it harder to hold government officials and others accountable for corruption and threaten the public’s ability to safely monitor their government’s spending decisions.

Human Rights Watch has documented that the Rajapaksa administration has aggressively repressed civil society by subjecting activists and nongovernmental organizations to intense surveillance and intimidation, reducing the ability of the public to hold the government to account.[16]

President Gotabaya Rajapaksa was himself facing corruption charges related to his previous period as defense secretary at the time of his election in 2019. The case was dropped after he became president due to constitutional provisions providing immunity in office.[17] The disclosure of financial records known as the Pandora Papers revealed that former Deputy Minister Nirupama Rajapaksa and her husband, Thirukumar Nadesan, who are members of the governing Rajapaksa family, held at least $17 million in previously undisclosed off-shore trusts.[18] Anti-corruption campaigners including Transparency International called for the matter to be investigated by CIABOC, to which President Rajapaksa then referred the case, although there appears to have been little progress in the investigation.

In December 2019, the Financial Crimes Investigation Division (FCID) of the police, which had been established by the previous government to investigate cases of fraud, was abolished as a separate unit and brought under the Criminal Investigation Department.[19]

In January 2020, President Rajapaksa established the Commission of Inquiry to Investigate Allegations of Political Victimization, to derail investigations of human rights abuses or corruption against his relatives and political allies that had been begun under the previous administration.[20] The Bar Association of Sri Lanka said that the commission’s report, which was submitted to the president on December 8, 2020, “may undermine the Rule of Law in this country, impair the independence of the Judiciary, and erode the impartial and efficient functioning of the Attorney General’s Department.”[21] The report recommended the withdrawal of nearly 40 cases of bribery and corruption then pending in the courts.

Numerous prominent corruption cases have been withdrawn by the CIABOC or the attorney general, or dismissed by the courts.[22] For example, on January 21, 2022, a court in Colombo discharged 11 people accused of bribery because prosecution documents had not been signed by all three members of the CIABOC.[23] The attorney general has yet to decide whether to proceed with a prosecution for alleged money laundering against Namal Rajapaksa, the prime minister’s son, and four others, in a case that was brought by the police in 2016.[24] Meanwhile, senior police officers involved in high-profile investigations have faced prosecution under the Rajapaksa administration.[25]

Among the corruption scandals alleged to have occurred under the Rajapaksa administration, the Finance Ministry told the parliamentary Committee on Public Accounts in March 2021 that the so-called “sugar scam” had cost the treasury 15.9 billion rupees (then $79.5 million).[26]

The IMF has in other countries made advancing judicial independence a key part of its programs. In February 2021, the IMF withheld the second tranche of a $5 billion loan to Ukraine in part because the government failed to make sufficient progress on judicial reform; four months later the Ukrainian parliament passed a bill reforming a council that selects and evaluates judges.

Key Recommendations:

  • Include reforms to restore the independence of institutions including the judiciary, auditor general, attorney general, and the CIABOC, which are key for economic growth and fighting corruption.
  • Engage closely with civil society organizations to devise measures that will make the government accountable to the public for its use of resources, and ensure a role for civil society groups in monitoring the implementation of the program.
  • Require the Sri Lankan government to restore independent and impartial investigations into corruption allegations and appropriate prosecute those responsible.

Accountability and the Role of the Military

Sri Lanka’s military has increasingly taken on civilian government functions, including in sectors such as health, development, and agriculture. The military’s lack of transparency and the limited civilian oversight raise significant risks of corruption and mismanagement. The military’s history of human rights abuses and discrimination gives rise to profound concerns about the suitability to fulfil these roles. In her report to the United Nations Human Rights Council on February 25, UN High Commissioner for Human Rights Michelle Bachelet warned of a "further drift towards militarisation" in Sri Lanka.[27] Especially in the north and east of the country, where militarization is most intense, the military has been implicated in rights violations against the same communities of which it increasingly maintains control. Furthermore, the military’s intense resistance to accountability for alleged abuses contributes to resistance to holding it accountable and subjecting it to civilian oversight for governance and financial issues.

The return of civilian lands seized by the military in the north and east has largely halted since 2019.[28] This continuing seizure of land causes displacement and exacerbates poverty. In some cases, the military uses the land for commercial purposes. Among the business activities undertaken by the military are farms, the Thalsevena Hotel in Jaffna, the Panama Lagoon Cabana in Ampara, and the Eagles Heritage Golf Course in Trincomalee.[29] Besides denying legal landowners their rights, the military’s business activities are not subject to public financial accountability, and make civilian businesses subject to unfair competition.

The auditor general has only limited oversight of the military’s dealings. According to financial regulation 237(D), in matters relating to the “secret services” in which the president and finance minister “have satisfied themselves that the money has been properly expended,” there can be no financial oversight, either by the auditor general or parliament.[30] Accountability campaigners believe that this provision is used to conceal large amounts of improper budgetary activity from public scrutiny, including activity that may relate to human rights violations.[31]

A 2019 auditor general’s report on areas of army expenditure over which it has oversight revealed a number of instances of waste and mismanagement of public funds.[32] The auditor general’s 2020 report found, “[t]he recommendations made by me on the financial statements of the preceding year had not been implemented.”[33]

Key Recommendations:

  • Make explicit that transparency measures that apply to state-owned enterprises extend to military-owned businesses, and independently verify that these disclosures are made as part of reviews.
  • In view of the scale of military expenditure, require that auditing of the Ministry of Defense meets the same criteria as other departments, and verify this as part of reviews.
  • Oppose audit exemptions for “secret services” that can be used to obscure the use of public funds, and require that security measures comply with international best practice for budgetary accountability.

Opportunities for Reform

The IMF needs to urgently intervene in Sri Lanka to prevent the economic crisis causing deep and worsening hardship. But to be successful the program needs to protect the lives and livelihoods of low-income people, and address entrenched obstacles to the rule of law.

We stand ready to discuss these matters further if that would be of assistance. If you would like to discuss further, please contact us to arrange a meeting.

Yours sincerely,

Arvind Ganesan
Director, Economic Justice and Rights Division
Human Rights Watch


[1] For Sri Lanka’s commitments to the UN Human Rights Council (which were abnegated by the current administration in 2020), see the consensus Resolution 30/1 of 2015, (accessed March 29, 2022). For Sri Lanka’s unmet commitments to the European Union under its GSP+ trading arrangement, see Human Rights Watch, “Sri Lanka: Rights Abuses Jeopardize EU Trade Benefits,” September 22, 2021, (accessed March 29, 2022).

[2] “IMF Executive Board Approves New Framework for Enhanced Engagement on Governance,” April 22, 2018, (accessed March 28, 2022).

[3] Sirimevan Colombage, “Draft Central Bank Act scrapped, preventing independence of monetary authority,” Daily FT, June 29, 2021, (accessed March 28, 2022).

[5] World Bank, Sri Lanka Poverty Assessment, Accelerating Economic Transformation Synthesis Report, 2021, (accessed March 28, 2022).

[6] Ibid.

[7] Ministry of Finance, “Budget Estimates – 2022 (approved by parliament),” (accessed March 29, 2022).

[8] Ibid.

[9] “A Strategy for IMF Engagement on Social Spending,” June 14, 2019, (accessed March 28, 2022).

[10] Verite Research, “The case for State supported maternity leave benefits in Sri Lanka,” September 24, 2020, (accessed March 28, 2020).

[11] Amita Arudpragasam, “Menstrual Hygiene, A Necessity Not A Luxury,” Colombo Telegraph, September 21, 2018, (accessed March 28, 2022).

[13] Transparency International Corruption Perceptions Index, (accessed March 29, 2022).

[15] Twentieth Amendment to the Constitution, October 29, 2020, (accessed March 29, 2022); Centre for Policy Alternatives, “Summary of Changes Under the Proposed 20th Amendment,” September 2022, (accessed March 29, 2022).

[16] Human Rights Watch, World Report 2022, Sri Lanka, (accessed March 29, 2022).

[17] “Corruption charges against Sri Lanka President Gotabaya Rajapaksa dropped, travel ban lifted,” The New Indian Express, November 21, 2019, (accessed March 29, 2022).

[18] Scilla Alecci, “Clamor for crackdown on hidden wealth jolts Sri Lanka elite following Pandora Papers revelations,” International Consortium of Investigative Journalists, November 1, 2021, (accessed March 29, 2022).

[19] “FCID brought under CID now,” Daily News, September 4, 2029, (accessed March 29, 2022).

[20] “Sri Lanka: Reject ‘Political Victimization’ Findings,” Human Rights Watch, April 30, 2021, (accessed March 29, 2022).

[21] “Statement on the motion before parliament seeking to implement certain decisions of the Presidential Commission of Inquiry (on political victimization),” Bar Association of Sri Lanka, April 17, 2021, (accessed March 29, 2022).

[22] Dhanushka Silva, “The Case for Acquittal – Justice or Impunity?” Ground Views, November 19, 2021, (accessed March 29, 2022).

[23] Zulfick Farzan, “Court orders release of suspects from 11 bribery cases as CIABOC had not obtained proper approval,” Newsfirst, January 21, 2022, (accessed March 29, 2022).

[24] Buddhika Samaraweera, “AG yet to advise on Namal money laundering case,” The Morning, March 25, 2022, (accessed March 28, 2022).

[25] “Sri Lanka: Former police investigator jailed with COVID-19: Shani Abeysekara,” Amnesty International, November 27, 2020, (accessed March 29, 2022); “Top detective who investigated high-profile cases flees Sri Lanka,” Al Jazeera, November 26, 2019, (accessed March 29, 2022).

[26] “Sugar scam costs Sri Lanka Rs 15.9 billion in tax revenue: Finance Ministry,” Economynext, March 9, 2021, (accessed March 29, 2022).

[27] “Sri Lanka: UN Report Describes Alarming Rights Situation,” Human Rights Watch, March 3, 2022, (accessed March 29, 2022)

[28] Centre for Policy Alternatives, Sri Lanka’s Vistas of Prosperity and Splendour: A Critique of Promises Made and Present Trends, July 2021, (accessed Mar 29, 2022).

[29] Ibid.

[30] Financial Regulations of the Government of the Democratic Socialist Republic of Sri Lanka, 1992.

[31] Human Rights Watch interview, details withheld, March 26, 2022.

[32] Auditor General’s report 2019, “Head 222- Sri Lanka Army,” (accessed March 29, 2022).

[33] Auditor General’s report 2020, “Head 222- Sri Lanka Army,” (accessed 29 March, 2022).

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