00:00 [Music] 00:03 00:03 welcome to today's advoca Studio I have 00:07 00:07 the distinct pleasure of having Peter 00:10 00:10 and Joel who is in Sri Lanka but joining 00:13 00:13 virtually maybe I can ask you Peter to 00:16 00:16 introduce 00:17 00:17 yourself absolutely uh so my name is 00:20 00:20 Peter Brer I'm a mission Chief uh for 00:23 00:23 the Sri Lanka team of the international 00:25 00:25 monetary fund thank you and Joel what do 00:28 00:28 you 00:29 00:29 do uh so hi and very nice to be here my 00:33 00:33 name is Joel turtz uh I'm the uh the 00:37 00:37 deputy division chief of the governance 00:39 00:39 and anti-corruption division of the 00:41 00:41 legal department and I was the mission 00:43 00:43 chief for the governance diagnostic 00:45 00:45 report well welcome to today's episode 00:49 00:49 so Peter if I can first turn to you um 00:51 00:51 Sri Lanka loves IMF it's the 17th time 00:55 00:55 we are with you uh one has noticed that 00:59 00:59 this time the program program is a 01:00 01:00 little bit different that there is a 01:02 01:02 focus on 01:03 01:03 governance uh how does governance fit 01:06 01:06 into this 01:07 01:07 program thank you moras and thank you 01:09 01:09 for the opportunity to discuss these 01:12 01:12 important issues relating to governance 01:15 01:15 uh with you here and um have an 01:18 01:18 opportunity to speak to your audience so 01:21 01:21 um the uh the rules um of how a society 01:27 01:27 functions and uh how they're being ad 01:30 01:30 here to are uh really 01:33 01:33 fundamental um to the functioning of an 01:38 01:38 economy uh rules are important for 01:42 01:42 economic social and political 01:46 01:46 stability uh so 01:50 01:50 uh when when I came to Sri Lanka for the 01:53 01:53 first time in 2022 at the height of the 01:57 01:57 economic crisis we heard from all 02:00 02:00 Corners concerns uh in this area that uh 02:05 02:05 uh these rules may not all be uh the 02:08 02:08 best they could be and that um there are 02:11 02:11 concerns about adherence to the rules so 02:14 02:14 it became clear to us very quickly that 02:17 02:17 uh for the economy to emerge out of the 02:20 02:20 crisis and to be once again on stable 02:24 02:24 and inclusive uh growth on a path 02:27 02:27 towards that growth um looking at uh 02:32 02:32 governance and transparency was a very 02:35 02:35 important uh part uh very important 02:38 02:38 component and in fact uh we consider 02:42 02:42 governance as one of the core pillars of 02:44 02:44 the program along with the many other 02:46 02:46 things we have on fiscal stability debt 02:50 02:50 sustainability you know Financial 02:53 02:53 stability and so forth so governance is 02:55 02:55 is a very important part um it's also 02:59 02:59 important for the credibility of the 03:01 03:01 economic uh program that the authorities 03:04 03:04 have uh embarked on because of that 03:07 03:07 skepticism uh that I mentioned uh so 03:10 03:10 dealing with it is very important so it 03:13 03:13 was clear to us that we needed to find 03:15 03:15 out more about this that we needed to 03:17 03:17 look into this to see what could 03:19 03:19 actually be done how could these issues 03:22 03:22 be incorporated into the program and 03:24 03:24 that's when we turn to our colleagues uh 03:27 03:27 to see whether they could uh embar on 03:31 03:31 what is known as a governance diagnostic 03:34 03:34 to look into these issues in Greater 03:36 03:36 depth okay thank you that was a very 03:38 03:38 comprehensive answer if I can turn to 03:40 03:40 you Joel and explain to us why the IMF 03:44 03:44 conducts governance 03:47 03:47 Diagnostics so thanks for the question 03:50 03:50 um and let me step back for a moment and 03:53 03:53 just provide first a little bit of a 03:55 03:55 sense of what is a diagnostic as as 03:57 03:57 Peter has explained it it is an 03:59 03:59 instrument that the the IMF uses as a 04:02 04:02 way of creating a holistic understanding 04:06 04:06 of the nature of sort of governance 04:08 04:08 challenges around some Core State 04:10 04:10 functions so in in 2018 the IMF adopted 04:15 04:15 a enhanced framework for strengthening 04:19 04:19 governance which um based upon sort of 04:22 04:22 our work and thinking about governance 04:25 04:25 uh and Corruption uh and it's the 04:28 04:28 consequences of of the these issues for 04:31 04:31 overall economic reform and balance of 04:33 04:33 payments was in an effort to say how do 04:36 04:36 how can we address these issues in a 04:38 04:38 more effective Manner and the core of 04:41 04:41 the the framework then was to say when 04:44 04:44 the IMF thinks about challenges on in 04:47 04:47 governance and Corruption we think about 04:50 04:50 it across six Core State functions um 04:53 04:53 which are the core functions that a 04:55 04:55 government needs to be able to do with 04:59 04:59 effectiveness in order to have sound 05:01 05:01 fiscal and monetary policies and we 05:04 05:04 identified those as the governance of 05:07 05:07 the central bank financial sector 05:10 05:10 governance fiscal governance which 05:12 05:12 includes both things like uh revenues 05:15 05:15 tax and Customs as well as uh budget 05:18 05:18 issues as well as 05:20 05:20 procurement uh issues around Market 05:23 05:23 regulation uh as well as issues um 05:26 05:26 relating to anti-money laundering and 05:29 05:29 the rule of law which for the IMF is 05:32 05:32 very much focused on contract uh 05:34 05:34 enforcement and property rights as the 05:37 05:37 foundation for Effective uh um economic 05:41 05:41 activity so we look across we use this 05:44 05:44 framework as a way of helping us to 05:46 05:46 structure our analysis uh and structure 05:49 05:49 our efforts to understand how these 05:52 05:52 issues and how governance challenges 05:54 05:54 affect particular jurisdictions now in 05:57 05:57 particular in Sri Lanka we uh what's F 06:00 06:00 what's most important to start is that 06:03 06:03 the government's diagnostic was done at 06:05 06:05 the request of the government so the 06:08 06:08 government requested the IMF to come and 06:11 06:11 do a 06:12 06:12 diagnostic uh as a contribution overall 06:16 06:16 uh part of the reform program and as the 06:19 06:19 the government the the leader of the 06:22 06:22 from the government said uh in the 06:25 06:25 kickoff meeting of the diagnostic it was 06:28 06:28 a s that he expressed was Sri Lanka has 06:32 06:32 gone through many many different cycles 06:34 06:34 of Reform where some reform happens 06:37 06:37 there is progress only to slip back and 06:40 06:40 so the challenge was how to create a 06:43 06:43 sustainable progress of Reform that 06:45 06:45 would get to improved governance that 06:47 06:47 was sustained uh and Rel to to economic 06:51 06:51 growth and social well-being so the the 06:54 06:54 governance diagnostic was was then 06:57 06:57 initiated because governance issues were 07:00 07:00 seen to be of critical importance in the 07:04 07:04 overall economic program and that 07:06 07:06 addressing governance and Corruption 07:08 07:08 issues was essential for the economic 07:11 07:11 reforms to be undertaken and effectively 07:14 07:14 sustained let me stop there so Joel uh I 07:19 07:19 understand that our president uh in a 07:22 07:22 speech that he made to the zon chamber 07:24 07:24 uh he said that the governance report is 07:27 07:27 going to be translated to the local 07:29 07:29 vernacular in sing and Tamil it's a very 07:31 07:31 complicated document does every country 07:35 07:35 release the results of the governance 07:39 07:39 diagnostic no I think um so first I I 07:42 07:42 agree I think this was a very important 07:44 07:44 statement by the president as a way of 07:46 07:46 demonstrating transparency and I think 07:49 07:49 the fact that the Sri Lankan government 07:51 07:51 both um had this published had the 07:54 07:54 report published as well as had it 07:56 07:56 published on its own website was an 07:59 07:59 important demonstration of a commitment 08:01 08:01 to transparency That's essential and I 08:04 08:04 think it's it's a very important um uh 08:07 08:07 it's a very important effort um and it 08:09 08:09 should be uh reinforced that Sri Lanka 08:12 08:12 is the only country is the first country 08:14 08:14 in Asia to have asked for a governance 08:17 08:17 Diagnostic and to have published a 08:18 08:18 governance Diagnostic in most instances 08:21 08:21 governance Diagnostics are published 08:23 08:23 we've done about completed approximately 08:26 08:26 20 governance Diagnostics since 2018 08:30 08:30 and and in the majority of those and in 08:33 08:33 approximately three qus of those the 08:35 08:35 governance Diagnostics have been 08:36 08:36 published but I think the the government 08:39 08:39 of Sri Lanka has been particularly 08:41 08:41 forthcoming in its uh in its interest 08:45 08:45 and not only willingness but actually 08:48 08:48 desire to have the report to be 08:51 08:51 accessible uh and to own the report uh 08:54 08:54 in a very public fashion okay if I may 08:58 08:58 uh have a follow-up question to you ual 09:00 09:00 uh I believe the diagnostic has 09:02 09:02 identified 16 priority actions can you 09:05 09:05 tell us a little bit about some of these 09:07 09:07 actions and the prioritization of them 09:10 09:10 sure um so as you say the governance 09:12 09:12 diagnostic has has uh has identified 16 09:17 09:17 priority recommendations there are also 09:20 09:20 um uh a larger set of complimentary uh 09:24 09:24 recommendations in the overall report 09:27 09:27 but and the 16 recommendations span all 09:30 09:30 of the five areas that uh we looked at 09:34 09:34 in detail so they span Central Bank 09:36 09:36 governance they span financial sector 09:38 09:38 oversight fiscal governance anti-money 09:41 09:41 laundering and rule of law issues as 09:43 09:43 well as core anti-corruption issues and 09:47 09:47 I I would say that we can separate them 09:49 09:49 into kind of three different buckets one 09:54 09:54 uh bucket is uh a set of recommendations 09:57 09:57 were about immediately addressing 10:00 10:00 leakages uh and having visible reforms 10:03 10:03 that are visible to everyone so for 10:06 10:06 example the in in that bucket there is a 10:09 10:09 recommendation about uh adopting 10:12 10:12 anti-corruption measures in tax and 10:15 10:15 Customs Revenue because corruption is 10:17 10:17 seen to undermine the collection of 10:20 10:20 public revenues in those areas um 10:23 10:23 there's a suggestion a recommendation 10:26 10:26 around the suspension of the Strategic 10:29 10:29 uh transaction law um because that is 10:32 10:32 also seen as a core area of leakage and 10:35 10:35 there was an emphasis on the appointment 10:38 10:38 uh in a rule-based fashion of the 10:41 10:41 commissioners of the anti-corruption 10:42 10:42 commission cbok because that was seen as 10:45 10:45 a very visible way of demonstrating a 10:48 10:48 commitment to addressing impunity 10:50 10:50 there's a second bucket which is about 10:52 10:52 strengthening accountability um and 10:55 10:55 strengthening the accountability 10:56 10:56 institutions that exist in Sri Lanka 10:59 10:59 that includes a set a recommendation 11:01 11:01 about enhancing the ability of the audit 11:04 11:04 the National Audit agency to directly uh 11:07 11:07 address corruption uh issues uh when 11:11 11:11 officials are not responding and not uh 11:14 11:14 um uh not fulfilling their functional 11:17 11:17 responsibilities a recommendation 11:19 11:19 relating to asset declarations and the 11:21 11:21 publication of asset declarations 11:22 11:22 especially for senior officials um the a 11:26 11:26 recommendation relating to transparency 11:29 11:29 about creating greater transparency 11:31 11:31 about tax exemptions procurement 11:33 11:33 transactions and a recommendation about 11:36 11:36 beneficial ownership Registries to 11:38 11:38 increase the transparency to enable of 11:41 11:41 both the government as well as civil 11:43 11:43 society to understand and to be able to 11:46 11:46 monitor government actions that relate 11:48 11:48 to accountability and a final set of 11:50 11:50 recommendations which are around 11:52 11:52 structural change things like a 11:54 11:54 procurement law or a removal of the 11:57 11:57 ability for min miners to change tax 12:01 12:01 rules without parliamentary approval the 12:04 12:04 creation and transparency around land 12:06 12:06 titling and the strengthening of the 12:08 12:08 Judicial Service Commission and finally 12:11 12:11 the and and and critically important uh 12:14 12:14 a recommendation around implementing the 12:16 12:16 state ownership policy and uh addressing 12:19 12:19 uh problems and issues around State 12:21 12:21 ownership so the recommendations come in 12:24 12:24 three sort of different varieties um and 12:27 12:27 together they try to form a coherent for 12:30 12:30 very comprehensive Joel and as a civil 12:33 12:33 society actor I thank you and your team 12:35 12:35 for having done such a comprehensive 12:37 12:37 report it's very rich it's very 12:39 12:39 informative and I hope at least a 12:41 12:41 thousand people in my country read it 12:43 12:43 because we can have a much more richer 12:45 12:45 conversation so if I can turn to you 12:47 12:47 Peter uh can you explain how this 12:50 12:50 governance diagnostic is linked to the 12:53 12:53 current program and what the next steps 12:55 12:55 would 12:56 12:56 be yeah so um uh for for us this 12:59 12:59 governance diagnostic was very important 13:02 13:02 and collaborating closely with Joel and 13:04 13:04 his team was uh very important to 13:07 13:07 understand these recommendations and 13:10 13:10 think about what are the priorities how 13:12 13:12 can we incorporate this into the 13:14 13:14 economic uh program that the authorities 13:17 13:17 uh commit themselves to so first the 13:20 13:20 publication of the governance diagnostic 13:23 13:23 was uh from early on of the program uh 13:26 13:26 uh a commitment that the authorities uh 13:29 13:29 had had made and it was published on 13:31 13:31 time in in September 13:33 13:33 2023 uh secondly the uh implementation 13:38 13:38 having an action plan of the 13:40 13:40 implementation of the recommendations uh 13:43 13:43 is a key commitment this is something 13:45 13:45 that is coming up in in the program so 13:48 13:48 thinking about um all these 13:50 13:50 recommendations that were made what can 13:52 13:52 be done about them how can they be 13:54 13:54 implemented uh then we had other 13:57 13:57 elements uh in uh 13:59 13:59 in the program that again was you know 14:03 14:03 discussed with the authorities and and 14:05 14:05 mutually agreed so the new 14:06 14:06 anti-corruption uh 14:08 14:08 legislation um was an important part uh 14:11 14:11 for uh for that other aspects are uh so 14:17 14:17 the kind of 14:18 14:18 Investigation of uh corruption and 14:22 14:22 bribery is very important so the uh how 14:26 14:26 the commission uh that is created for 14:30 14:30 that does that is very important so it's 14:32 14:32 not only the rules it's also how they're 14:34 14:34 being enforced and the people doing that 14:36 14:36 are very important and hence we paid a 14:38 14:38 lot of attention to uh how the 14:41 14:41 commissioners of this new 14:42 14:42 anti-corruption commission are being 14:44 14:44 selected uh and and there was a 14:46 14:46 commitment uh relating to that uh other 14:50 14:50 aspects are uh following up on uh What 14:54 14:54 uh Joel said uh in the area of 14:57 14:57 transparency uh 14:60 14:60 in Sri Lanka there are a lot of tax 15:01 15:01 exemptions in a country that is 15:03 15:03 suffering from very low uh tax take uh 15:07 15:07 so 15:09 15:09 um getting a clear picture of how much 15:13 15:13 revenue is actually missing uh from this 15:16 15:16 country that's suffering from uh 15:18 15:18 insufficient revenues to support the 15:20 15:20 expenditures that it has was important 15:23 15:23 so um there's a commitment to publish uh 15:26 15:26 tax exemptions firms that benefit from 15:28 15:28 tax exemption s uh as well as uh 15:32 15:32 transparency around public procurement 15:34 15:34 contracts above a certain size uh is an 15:37 15:37 important commitment other commitments 15:40 15:40 uh relate to asset recovery uh of stolen 15:45 15:45 funds uh that that is a uh what we call 15:48 15:48 Benchmark coming up um as well as uh the 15:53 15:53 functioning uh the governance of public 15:56 15:56 uh Banks uh ensuring that um these are 15:60 15:60 managed in a capable and efficient uh 16:03 16:03 manner uh is a very important commitment 16:06 16:06 because public banks are so important in 16:08 16:08 the financial system in in Sri Lanka uh 16:11 16:11 and play this key role in intermediating 16:14 16:14 financial uh um 16:16 16:16 flows and then lastly uh asset 16:20 16:20 declarations as Joel had recommended uh 16:23 16:23 of senior officials uh is something uh 16:26 16:26 that we considered as as being important 16:29 16:29 so these are some of the specific uh 16:32 16:32 commitments that the authorities have 16:33 16:33 made in what we call structural 16:35 16:35 benchmarks but I should point out that 16:38 16:38 governance plays a role uh in many other 16:41 16:41 aspects of the program it permeates uh 16:43 16:43 the program so in the fiscal area uh 16:46 16:46 there are reforms relating to public 16:48 16:48 financial management uh there's the 16:50 16:50 establishment of the uh uh public debt 16:53 16:53 management uh unit there is uh there are 16:56 16:56 fiscal rules and transparency uh then we 16:60 16:60 have uh in the sort of banking Financial 17:02 17:02 area uh aspects of the Central Bank act 17:05 17:05 relate to governance and transparency 17:07 17:07 and similarly uh amendments in the 17:10 17:10 Banking Act uh relate uh to governance 17:12 17:12 and transparency and finally also to 17:15 17:15 point out in other areas uh the reforms 17:18 17:18 around the social safety net and of um 17:21 17:21 state-owned Enterprises uh also have 17:23 17:23 elements pertaining to governance and uh 17:27 17:27 uh transparency so it's all around very 17:30 17:30 important so we are undergoing a very 17:32 17:32 deep economic crisis I think almost 50% 17:35 17:35 of the population the bottom 50% of the 17:37 17:37 population are really suffering and 17:40 17:40 there is a public perception that this 17:42 17:42 is a governance crisis Al the focus is 17:45 17:45 on corruption and Corruption is a subset 17:48 17:48 of governance can you explain how this 17:52 17:52 governance Diagnostic and the findings 17:54 17:54 are helping in the program the recovery 17:58 17:58 of the economy how is it 17:60 17:60 linked so um as I said at the outset uh 18:04 18:04 uh governance transparency are key to 18:06 18:06 the functioning of society and of an 18:08 18:08 economy it's it's everywhere how we 18:11 18:11 behave has implications uh for uh um the 18:16 18:16 welfare uh of everyone in this economy 18:19 18:19 so just to give you an example uh on the 18:22 18:22 fiscal side 18:24 18:24 uh the more corruption can be eliminated 18:28 18:28 uh the more the state can raise its 18:31 18:31 revenue from its regular tax rates uh 18:34 18:34 the less has to be asked of everybody 18:37 18:37 the it means the burden on everybody can 18:39 18:39 be reduced if corruption can be 18:41 18:41 eliminated right the corruption of a few 18:44 18:44 is a price that's paid by everybody else 18:48 18:48 uh so uh um reducing the burden on 18:52 18:52 everybody else by eliminating corruption 18:54 18:54 is a very important uh part in the 18:58 18:58 financial area area um if banks can 19:01 19:01 function more efficiently if they can 19:03 19:03 intermediate Financial flows uh more 19:07 19:07 efficiently that will bring down the 19:09 19:09 cost of capital this will bring down the 19:11 19:11 cost of 19:12 19:12 intermediating uh these flows uh and 19:15 19:15 that will help with the allocation of 19:17 19:17 capital that will help that will 19:18 19:18 contribute to restarting growth uh and 19:22 19:22 putting Sanka on a trajectory of stable 19:25 19:25 and in inclusive growth and in the 19:28 19:28 social area it's so important that the 19:30 19:30 allocations that are being made to those 19:33 19:33 uh who really need the support uh of 19:35 19:35 society that they get what is being 19:38 19:38 allocated to them and that this money 19:40 19:40 isn't lost or misallocated to those who 19:42 19:42 don't really need it uh so th those are 19:44 19:44 just sort of uh a few examples of uh how 19:47 19:47 eliminating corruption is really 19:49 19:49 important in fact if I was to add a 19:51 19:51 personal flavor to it I have seen 19:54 19:54 especially in public procurement the 19:56 19:56 corruption is not only what they take 19:58 19:58 but they misallocate resources so they 20:01 20:01 they go generally they award the 20:03 20:03 projects to perhaps the most expensive 20:05 20:05 one because the amount of money that is 20:08 20:08 leaked out is higher and it's not 20:10 20:10 necessarily the most optimal option and 20:13 20:13 that's where the biggest damage is done 20:15 20:15 rather than what has been leaked out so 20:17 20:17 Joel uh based on the governance 20:20 20:20 diagnostic uh what are the priority 20:22 20:22 areas thanks and and I just want to 20:24 20:24 support your last statements about 20:26 20:26 procurement which I think um filters in 20:29 20:29 and feeds into my response I think what 20:32 20:32 we understand about corruption and 20:33 20:33 procurement when procurement Works 20:36 20:36 effectively what happens is the state 20:39 20:39 purchasing promotes competition promotes 20:42 20:42 private sector development and allows 20:44 20:44 for new entrance to succeed through more 20:47 20:47 efficiency and greater Effectiveness 20:49 20:49 when corrupt when procurement happens 20:52 20:52 through corrupt mechanisms all of those 20:56 20:56 benefits get lost and so when we think 20:58 20:58 about about well what's the cost of 20:60 20:60 corruption to Sri Lanka and Sri Lanka's 21:03 21:03 Economic Development it's a small amount 21:07 21:07 that gets lost through bribery and it's 21:09 21:09 even actually a a small amount or it's a 21:12 21:12 larger amount but of what gets lost in 21:15 21:15 terms of efficiency what gets lost is a 21:17 21:17 lack of competition a lack of the 21:19 21:19 ability for new firms to come into the 21:22 21:22 economy um and those are the places 21:25 21:25 where if we address corruption 21:27 21:27 effectively and I and find ways to have 21:30 21:30 both the public sector work more 21:32 21:32 effectively and for accountability 21:34 21:34 institutions to be more uh more 21:36 21:36 effective that the potential for uh 21:40 21:40 supporting economic development is vast 21:42 21:42 and enormous so for in that same vein 21:45 21:45 what I'd like to focus on is I think the 21:48 21:48 diagnostic suggests that there are first 21:50 21:50 a set of core channels for corruption 21:53 21:53 where corruption has a fundamental 21:56 21:56 impact upon Economic Development and 21:58 21:58 important to address those areas and in 22:02 22:02 particular what the diagnostic focuses 22:04 22:04 on is is a particular areas around State 22:06 22:06 ownership um and both state owner and 22:09 22:09 state owned companies around public 22:12 22:12 procurement uh around the financial 22:14 22:14 sector and around land uh and and uh and 22:18 22:18 um uh activities around land it also 22:21 22:21 focuses on existing and current 22:25 22:25 weaknesses in accountability Institution 22:29 22:29 um including the current weaknesses uh 22:32 22:32 and vulnerabilities relating to the seok 22:36 22:36 the anti-corruption commission the 22:37 22:37 financial intelligence unit the audit 22:40 22:40 agency as well as the right to 22:42 22:42 information commission so what we're 22:44 22:44 trying to do on the recommendations is 22:47 22:47 and I think the priorities lie in both 22:50 22:50 doing things that uh that disrupt the 22:54 22:54 corruption channels that exist at the 22:56 22:56 same time strengthening the 22:58 22:58 accountability structures that exist in 23:01 23:01 Sri Lanka and can be strengthened and if 23:04 23:04 they are effectively strengthened can be 23:06 23:06 truly a a a a powerful force for 23:09 23:09 changing the governance Dynamics and 23:11 23:11 improving Effectiveness so I think what 23:14 23:14 you see in in how we prioritize and the 23:17 23:17 short-term priorities are exactly along 23:19 23:19 those two areas reducing the obvious 23:22 23:22 sort of um uh ways that corruption 23:26 23:26 happens along the the these key areas as 23:29 23:29 well as strengthening the the 23:31 23:31 accountability structures I do want to 23:33 23:33 say that I think Sri Lanka has benef has 23:36 23:36 that potential for benefiting from a a 23:39 23:39 strong institutional framework so the 23:42 23:42 institutions exist in Sri Lanka and I 23:44 23:44 think also a very long and strong 23:47 23:47 tradition of Civil Society engagement 23:50 23:50 and oversight with an active media is a 23:53 23:53 fundamental strength of Sri Lanka that I 23:55 23:55 think it's it's critical to both 23:57 23:57 recognize ize and to activate and to 24:00 24:00 utilize as much as possible in trying to 24:04 24:04 drive reforms to happen because what we 24:06 24:06 found in historically is that often 24:09 24:09 times the reforms proceed quickest in 24:13 24:13 those places where the ability for the 24:15 24:15 Civil Society and for Outsiders to 24:18 24:18 understand and and monitor performance 24:22 24:22 and push for change is the places where 24:24 24:24 perhaps there's the greatest possibility 24:27 24:27 for change to happen in the short term 24:29 24:29 if I can come in here Joel with my own 24:31 24:31 personal experience you know in many 24:33 24:33 jurisdictions doing business with the 24:35 24:35 government is not very profitable but in 24:38 24:38 Sri Lanka it is the most profitable 24:40 24:40 segment of the market because it's 24:42 24:42 either being sell selling to the 24:44 24:44 government above market price or buying 24:46 24:46 something from the government below 24:47 24:47 market price and what contributes to 24:50 24:50 this Nexus is that our political system 24:53 24:53 especially electoral system the way it's 24:55 24:55 organized you need a lot of money to be 24:58 24:58 politics because the electorates are 24:59 24:59 very large their District base so this 25:02 25:02 creates a very toxic mix between elected 25:06 25:06 representatives and the government 25:08 25:08 system so outside your remit we Civil 25:11 25:11 Society have to also Lobby to change the 25:14 25:14 electoral system so that you don't need 25:16 25:16 so much of money to be in politics um 25:21 25:21 can I add something I I 25:23 25:23 so I think it's very important to 25:25 25:25 recognize that the government is the 25:26 25:26 largest purchaser 25:28 25:28 um in the in the country it's the 25:31 25:31 largest land owner in the country um it 25:34 25:34 which economic consequences and impact 25:37 25:37 are huge and getting to Greater 25:40 25:40 efficiency and Effectiveness in its 25:42 25:42 ownership mechanisms in the way land is 25:46 25:46 addressed and and dealt with and public 25:48 25:48 procurement that that state Contracting 25:50 25:50 is fundamental to getting to a more 25:52 25:52 competitive and growing uh study and I 25:55 25:55 think your point about the political as 25:57 25:57 you say this is kind of outside the 25:59 25:59 remit of the the IMF but I think we 26:02 26:02 recognize that this is also an important 26:05 26:05 Dimension and if I can just add to that 26:08 26:08 uh that what Joel just said and you said 26:11 26:11 uh can be felt by the people right away 26:13 26:13 if they if they have to pay less taxes 26:15 26:15 if uh utility prices are lower uh if 26:20 26:20 generally prices for goods and services 26:22 26:22 are lower because the economy is 26:24 26:24 functioning more efficiently is 26:26 26:26 something that is uh felt uh immediately 26:29 26:29 so uh uh pursuing that goal I think is a 26:32 26:32 very important objective and I can vouch 26:34 26:34 for that Peter because having observed 26:37 26:37 how government has functioned for 30 26:39 26:39 years uh there's ample opportunity to 26:41 26:41 lower cost that the system is gamed uh 26:46 26:46 the contracts are 26:48 26:48 basically uh written in a way to prefer 26:52 26:52 a single bidder so there's a lot of 26:54 26:54 Reform that needs to be done now the 77 26:58 26:58 program is revenue based consolidation 27:01 27:01 so the focus is on 27:03 27:03 taxes uh there was a time 20 years ago 27:06 27:06 or more where our tax GDP was close to 27:09 27:09 20% and our low point it was even below 27:12 27:12 8% and I believe the program targets 27:14 27:14 about 14% uh at the end of the program 27:18 27:18 so you are uh under the program they are 27:21 27:21 widening the tax Bas especially the vat 27:24 27:24 from 1 January which is the right thing 27:26 27:26 to do because vat is leas distortionary 27:29 27:29 tax and by exempting certain segments 27:33 27:33 you are creating a distortion in 27:34 27:34 relative prices which is slowly slowly 27:36 27:36 being fixed uh but then there are others 27:40 27:40 who say that okay the vat is felt by the 27:42 27:42 poorest yes uh but there are others 27:46 27:46 right at the top of the stack because 27:48 27:48 the we distribution in Sri Lanka like 27:50 27:50 many other countries is highly 27:51 27:51 concentrated amongst the top 1% that 27:53 27:53 there are these highly generous tax 27:56 27:56 exemptions that are being given through 27:58 27:58 the Strategic development project there 28:01 28:01 has been recently an announcement in the 28:03 28:03 media about a logistics facility in the 28:05 28:05 Columbo Port which is a highly 28:07 28:07 established port and I don't see the 28:09 28:09 reason why a tax concession of 15 or 16 28:12 28:12 years is warranted and then we have this 28:15 28:15 real estate development called the port 28:17 28:17 city where they have been given uh 28:20 28:20 special powers to give tax solid days as 28:23 28:23 long as 40 years now this doesn't seem 28:27 28:27 to be fa I mean projects that don't 28:30 28:30 require uh tax exemptions because the 28:33 28:33 private returns are far in excess of the 28:35 28:35 cost of capital and then the poor people 28:38 28:38 basically who don't have a lot of say 28:40 28:40 through their consumption not 28:42 28:42 necessarily direct taxation because 28:44 28:44 they're below the threshold are having 28:46 28:46 to have very regressive taxes how can 28:48 28:48 this be 28:51 28:51 fair yeah um I couldn't agree with you 28:55 28:55 more uh matasa that these tax exemption 28:58 28:58 in a country where tax collection is so 29:01 29:01 low uh are indeed a concern uh because 29:05 29:05 it essentially means that the burden on 29:07 29:07 the rest of the population is larger in 29:10 29:10 order to make up uh the difference to 29:13 29:13 expenditures because you still have the 29:15 29:15 government providing essential services 29:17 29:17 that need to be financed one way or the 29:20 29:20 other and uh tax exemptions to one group 29:23 29:23 means the other groups have to pay um uh 29:28 29:28 a higher tax burden in order to be able 29:30 29:30 to finance these expenditures because 29:33 29:33 that didn't quite happen that's how we 29:35 29:35 landed in in the crisis and and so now 29:38 29:38 uh we are trying uh to find ways to undo 29:41 29:41 this to restore confidence and to 29:43 29:43 restore confidence of uh lenders who 29:46 29:46 will once again lend uh to the 29:48 29:48 government to to cover that Gap but uh 29:51 29:51 specifically to your question uh we were 29:54 29:54 concerned about these exemptions and so 29:57 29:57 um the authorities have now committed 29:59 29:59 under the program uh to uh have more 30:03 30:03 transparency to publish a list of firms 30:06 30:06 uh that benefit uh from tax exemptions 30:09 30:09 uh under uh these various schemes uh 30:12 30:12 that exist um so that it's at least 30:16 30:16 clear who benefits from it and uh 30:19 30:19 there's meant to be an estimate of what 30:21 30:21 is the value uh of these exemptions so 30:25 30:25 that there is a better view of how much 30:27 30:27 revenue is actually missing uh so I 30:31 30:31 think that will be very important and 30:32 30:32 then even more important than that uh 30:35 30:35 the government has committed uh to not 30:38 30:38 Grant any more uh exemptions uh so I 30:41 30:41 think uh that is also very important 30:44 30:44 going forward that as the government is 30:46 30:46 trying to collect more Revenue uh with 30:49 30:49 one hand that it doesn't then offer uh 30:51 30:51 more tax exemptions uh with the other 30:54 30:54 hand but in in the report itself uh you 30:57 30:57 go on to say that there are three pieces 30:60 30:60 of legislation the Strategic projects uh 31:03 31:03 the port city law and some kind of 31:05 31:05 pharmaceutical industrial Zone that have 31:08 31:08 been given authority to provide tax 31:11 31:11 concessions and we have recently seen 31:13 31:13 some announcements about projects in the 31:15 31:15 Port City about this Logistics facility 31:17 31:17 the port which have been announced after 31:20 31:20 the resum uh commencement of the 17th 31:23 31:23 program have you questioned them of why 31:26 31:26 they are going ahead while they have 31:28 31:28 signed off of not to do it yes we have 31:31 31:31 brought this up and our understanding is 31:33 31:33 that uh these are uh proposals that have 31:36 31:36 been tabled but that are not uh being 31:38 31:38 implemented okay right um if I can move 31:43 31:43 over to you uh another part of fiscal 31:45 31:45 management is the public financial 31:47 31:47 management jeel and Sri Lanka has a 31:51 31:51 procurement guideline but we don't have 31:54 31:54 a procurement law why do we need a law 31:58 31:58 um so so thanks I I think um there are 32:01 32:01 two answers to this question I mean 32:04 32:04 first uh if you look at the procurement 32:07 32:07 guidelines that exist and currently 32:10 32:10 function in in Sri Lanka what you end up 32:13 32:13 what you find is there is an excessive 32:17 32:17 amount of authority that's vested at the 32:19 32:19 cabinet level in making decisions about 32:22 32:22 large procurement what you want to try 32:25 32:25 to do especially in large procurement is 32:28 32:28 have as great uh a an input from the 32:32 32:32 technical aspects of pro on procurement 32:36 32:36 so the the greatest possible uh ability 32:38 32:38 to evaluate the technical specifications 32:41 32:41 of a bid and limit the political 32:44 32:44 involvement of others because that's a a 32:47 32:47 way of of creating um uh decisions that 32:51 32:51 are are will not be particularly 32:54 32:54 effective and efficient almost all 32:56 32:56 countries and if you look through the 32:60 32:60 the uh International experience um have 33:04 33:04 public procurement laws because they 33:06 33:06 create a type of consistency uh in the 33:09 33:09 legal framework around public 33:11 33:11 procurement um which is a as we've 33:13 33:13 talked about just previously uh a vital 33:16 33:16 element both in how the the government 33:18 33:18 spends money but also how the economy 33:21 33:21 functions um so public procurement laws 33:23 33:23 create a level of of uh regularity and 33:26 33:26 consistency 33:28 33:28 in the legal basis for procurement they 33:30 33:30 also establish Clarity in how 33:34 33:34 procurement processes are supposed to be 33:36 33:36 done as well as Clarity in how 33:38 33:38 procurement processes are supposed to be 33:40 33:40 monitored and overseen and establish 33:43 33:43 mechanisms to ensure that the rules are 33:46 33:46 actually followed 33:48 33:48 effectively the there has been there 33:50 33:50 have been a number of of work and 33:53 33:53 evaluations about Siran and procurement 33:56 33:56 which has identified 33:57 33:57 a range of of issues around its 33:60 33:60 Effectiveness and one of them being just 34:03 34:03 a lack of of clarity or a lack of the 34:06 34:06 ability to rely upon the legal basis 34:08 34:08 that currently exists because it's not a 34:11 34:11 law because it exists as a guideline 34:14 34:14 that prevents the the type of assurances 34:18 34:18 that you would want to have and things 34:20 34:20 like moving to an E procurement system 34:23 34:23 and moving towards more Effectiveness uh 34:26 34:26 and use of it systems those types of 34:28 34:28 investments in your public procurement 34:30 34:30 system which are essential are not 34:32 34:32 happening in Sri Lanka right now at the 34:35 34:35 speed and Pace That's essential in order 34:37 34:37 to support reform and the adoption of a 34:40 34:40 of a proc public procurement law that 34:42 34:42 meets International standards that is 34:45 34:45 supported and provide and is in 34:48 34:48 accordance with the type of of advice 34:50 34:50 that's been provided by the World Bank 34:52 34:52 is an essential step in demonstrating 34:55 34:55 Sri Lanka's commitment to a stronger 34:57 34:57 legal basis and a stronger public 34:59 34:59 procurement system okay that was quite 35:02 35:02 comprehensive Joel if I may have another 35:05 35:05 question uh in your report uh annexure 2 35:10 35:10 has a detailed case for an independent 35:12 35:12 public prosecutor but in the body of the 35:15 35:15 report you say that this is not a 35:18 35:18 immediate 35:19 35:19 priority uh there seems to be a lot of 35:22 35:22 feeling across civil society that that 35:25 35:25 should have been a priority because can 35:28 35:28 you explain to us why you need an 35:30 35:30 independent prosecutor and why the 35:33 35:33 existing prosecutorial Arrangement 35:35 35:35 through the Attorney General's 35:36 35:36 department is 35:39 35:39 suboptimal sure and thanks and and we 35:41 35:41 appreciate that um the that there are um 35:47 35:47 uh people who would preferred us to be 35:49 35:49 more forthright in making a 35:51 35:51 recommendation about the creation of an 35:53 35:53 independent public 35:54 35:54 prosecutor um we thought it was 35:56 35:56 important to have that discussion in the 35:59 35:59 governance diagnostic because we think 36:01 36:01 it's an important question for sirri 36:03 36:03 Lanka going forward is the existing 36:05 36:05 Arrangements around public prosecution 36:08 36:08 and particularly public prosecution of 36:10 36:10 corruption offenses is this actually 36:13 36:13 yielding the results that sirri Lankans 36:16 36:16 want and expect from their government 36:18 36:18 and I think that's an open question and 36:20 36:20 what we see 36:21 36:21 internationally uh um is that certain 36:24 36:24 jurisdictions have moved to an 36:26 36:26 independent public prosecutor and other 36:28 36:28 jurisdictions haven't um and there is no 36:31 36:31 one model right now that dominates where 36:33 36:33 you can say this is what country should 36:36 36:36 move to we think it's a it is an 36:38 36:38 important question to consider 36:40 36:40 ultimately when we were thinking about 36:41 36:41 this in terms of priorities and in terms 36:44 36:44 of where we wanted to focus we thought 36:46 36:46 the critical thing first step is the 36:50 36:50 adoption of the anti-corruption law and 36:52 36:52 the creation of an effective uh 36:54 36:54 anti-corruption agency seok and cbok 36:57 36:57 it's important to recognize has 36:60 36:60 independent investigative 37:02 37:02 responsibilities as well as independent 37:04 37:04 prosecutorial Authority and we thought 37:07 37:07 that is at at that it was critical to 37:12 37:12 have seok up and running as an 37:14 37:14 independent entity uh and after some 37:19 37:19 time I think it will be more apparent 37:21 37:21 whether the existing legal framework and 37:24 37:24 organizational Arrangements around the 37:27 37:27 investigation and prosecution of 37:28 37:28 corruption is yielding the results that 37:31 37:31 sir lancin want if it ends up that cbok 37:34 37:34 is not able to effectively prosecute or 37:38 37:38 that there are still efforts and still 37:40 37:40 beliefs that a different Arrangement 37:43 37:43 would yield better results I think it it 37:45 37:45 is at that point where moving towards a 37:48 37:48 different Arrangement might make sense 37:50 37:50 but it is always the case that creating 37:52 37:52 new agencies and new institutions is a 37:55 37:55 very long process it takes significant 37:58 37:58 resources to do that um and often times 38:02 38:02 the effectiveness of new institutions is 38:04 38:04 not dramatically different from the 38:06 38:06 effectiveness of older institutions so 38:08 38:08 we did not think that as a priority 38:11 38:11 creation of an independent prosecutor 38:13 38:13 Authority was the priority at this 38:17 38:17 moment in time in Sri Lanka but we do 38:20 38:20 think it's an important question to 38:22 38:22 remain open and for people to be 38:24 38:24 considering what is the right model for 38:26 38:26 sir 38:27 38:27 as it goes 38:29 38:29 forward okay finally Peter if I can turn 38:33 38:33 to you um two years ago we had a protest 38:37 38:37 movement in Sri Lanka called Aral which 38:40 38:40 is the struggle and it was a basically 38:43 38:43 youth Le movement outside uh the shanga 38:46 38:46 hotel uh one of the key uh requests was 38:51 38:51 we want system change of course they 38:54 38:54 were unable to explain they intuitively 38:57 38:57 knew what it meant but they wouldn't 38:59 38:59 have specifics of what exactly had to be 39:01 39:01 done I believe the IMF governance 39:03 39:03 diagnostic is part of what can be done 39:06 39:06 for system change so what can Civil 39:10 39:10 Society the private sector ordinary 39:12 39:12 citizens and government do to implement 39:15 39:15 what is in the 39:17 39:17 report so if I had to answer your 39:20 39:20 question in one sentence uh I would say 39:23 39:23 if you see something say something uh I 39:26 39:26 think it is 39:27 39:27 very important uh for each individual 39:30 39:30 and for society as a whole uh to work 39:33 39:33 together to fight against corruption 39:35 39:35 fight against bribery increase 39:37 39:37 transparency for the very benefits we we 39:40 39:40 discussed uh to lower the burden on on 39:43 39:43 every individual so at the government 39:45 39:45 level uh it's uh very important that uh 39:49 39:49 government is organized in such a way uh 39:52 39:52 that 39:53 39:53 uh you know there be severe punishment 39:56 39:56 for any any sort of uh Act of corruption 39:59 39:59 or or bribery and that this be actually 40:01 40:01 prosecuted and and pursued similarly the 40:03 40:03 private sector uh needs to uh go after 40:07 40:07 people who engage in such practices uh 40:09 40:09 that could involve government 40:12 40:12 officials and for uh csos and uh the 40:16 40:16 media they play a very important role in 40:19 40:19 holding the government to account and so 40:21 40:21 there needs to be an enabling 40:23 40:23 environment that allows them to do uh to 40:26 40:26 play their role to hold um the 40:29 40:29 government to to account and and and 40:32 40:32 that they have that Civic space uh to to 40:34 40:34 operate in that so I think in this way 40:37 40:37 all elements of society uh can work 40:41 40:41 together in order to improve the 40:43 40:43 functioning of society um and actually 40:47 40:47 benefit uh from uh the economic gains 40:50 40:50 that are to be reaped by 40:52 40:52 that so over to you Joel I mean you have 40:55 40:55 probably seen uh this in many other 40:58 40:58 countries how is the best way forward in 41:01 41:01 implementing the 41:03 41:03 recommendations thanks uh thanks for the 41:05 41:05 question and and you know I think um one 41:08 41:08 of the core 41:10 41:10 learnings um around governance is always 41:14 41:14 that each country and and each Society 41:18 41:18 has to find its own way to good 41:20 41:20 governance it's a phrase that we use but 41:23 41:23 indeed it it's not there's not a model 41:25 41:25 to emulate um but indeed it's a a way of 41:29 41:29 having uh decisions and the use of power 41:32 41:32 and authority done in a a way that's 41:34 41:34 effective in a in a society and and 41:37 41:37 meets uh societal standards so I I think 41:40 41:40 it's important to understand that there 41:42 41:42 is variation uh that's important and 41:45 41:45 that uh at the same time countries can 41:47 41:47 learn from each other I think one of the 41:49 41:49 critical things that we' we've uh um 41:53 41:53 learned is is the importance of 41:56 41:56 leadership ship um leadership not just 41:60 41:60 uh leadership from government um and 42:02 42:02 from the top of government as an 42:04 42:04 essential element but also leadership 42:06 42:06 from all of the other elements of 42:08 42:08 society that need to come together so I 42:11 42:11 think leadership in the private sector 42:13 42:13 of 42:14 42:14 demanding um uh a rule-based governance 42:18 42:18 and demanding standards of itself um is 42:21 42:21 is essential I think leadership of civil 42:24 42:24 society and Leadership by media are also 42:27 42:27 essential elements of having change 42:30 42:30 happen I think the the second thing I 42:32 42:32 just want to emphasize is one of the 42:35 42:35 things we've consistently seen is 42:37 42:37 whenever you have reform success 42:39 42:39 whenever you start and I think Sri Lanka 42:41 42:41 has already demonstrated and taken 42:43 42:43 important steps uh along the reform 42:46 42:46 trajectory what we understand is that 42:48 42:48 whenever there is reform success there 42:50 42:50 is a push back against that as rents and 42:54 42:54 and as the the proceeds and the people 42:56 42:56 who benefit from the status quo get 42:59 42:59 start challenged there will be a a 43:01 43:01 counter effort uh in order to move 43:04 43:04 things back again to how they've been 43:08 43:08 and so I think one of the critical 43:10 43:10 things is to understand and appreciate 43:12 43:12 that it is not a linear progress of 43:16 43:16 Reform that that's not how governance 43:18 43:18 reform happens it is that you will um 43:21 43:21 make progress through leadership and 43:23 43:23 through commitment to achieving specific 43:26 43:26 objectives 43:27 43:27 but that you should expect that there 43:28 43:28 will then be efforts to try and roll 43:31 43:31 back those reforms and to in some ways 43:33 43:33 be prepared and being prepared means 43:36 43:36 having uh groups of people as allies 43:39 43:39 together so that no one group can 43:42 43:42 succeed if it's if they're uh separate 43:45 43:45 government by itself cannot enforce 43:48 43:48 governance reforms if it's not being 43:50 43:50 supported by the private sector as well 43:51 43:51 as civil society just as government by 43:54 43:54 itself is unlikely to do all all of the 43:56 43:56 things that that are important and 43:58 43:58 needed without the pressure from the 44:00 44:00 private sector and Civil Society so I 44:03 44:03 think these things are really important 44:04 44:04 to recognize and I guess the last and 44:08 44:08 final thing in line with this is that 44:10 44:10 what appreciate is that there's no one 44:13 44:13 reform that's going to succeed and 44:16 44:16 change the goverance situation in Sri 44:19 44:19 Lanka it is a collection of reforms that 44:23 44:23 together may change the incentives and 44:26 44:26 May change the the mechanisms by which 44:29 44:29 the government uh um works and by which 44:33 44:33 accountability happens and so it's a 44:36 44:36 it's critical to make sure that we don't 44:39 44:39 expect dramatic transformative change by 44:42 44:42 a single act so the creation of seok or 44:46 44:46 the the uh having seach Commissioners or 44:49 44:49 the creation of an asset declaration 44:50 44:50 system these are important components of 44:53 44:53 a different governance Paradigm and a 44:55 44:55 different governance environment but in 44:58 44:58 and of themselves will not change 45:00 45:00 governance in Sri Lanka it is a 45:02 45:02 collection of things that happen and the 45:05 45:05 the integration of these across the 45:08 45:08 reform element that are going to drive 45:11 45:11 success um and I think Sri Lanka has a 45:14 45:14 tremendous opportunity because of the 45:16 45:16 strength of each of the different 45:18 45:18 dimensions of the Civil Sri Lankan 45:21 45:21 society that exists that that um can dve 45:26 45:26 re form progress in a sustained fashion 45:29 45:29 you know when you were speaking Joel uh 45:31 45:31 it reminded me of something that I read 45:33 45:33 uh about the iron law of oligarchy that 45:36 45:36 just because you throw one set of people 45:38 45:38 out you have to be careful that another 45:40 45:40 set of people don't come and exploit the 45:42 45:42 same system and that's why we need a 45:44 45:44 change to the system so that you know we 45:47 45:47 cannot be exploited like what happened 45:49 45:49 to us in the past also Peter that since 45:52 45:52 this is a fiscal based program it 45:55 45:55 reminds me of Professor m Mo who said 45:57 45:57 that Societies in which it people pay 45:60 45:60 taxes enjoy more governance and it is so 46:02 46:02 true because people then feel that it's 46:04 46:04 coming out of the so just as you said 46:07 46:07 that you know say something now you have 46:09 46:09 a lot of people who are seething with 46:11 46:11 anger and they will say something so 46:14 46:14 from my personal point of view I thank 46:17 46:17 the IMF to have come to Sri Lanka's 46:20 46:20 assistance at this juncture it was the 46:22 46:22 only game in town uh it is the 17th time 46:26 46:26 and let's hope it's the last 46:29 46:29 time we do everything we can uh with 46:32 46:32 that objective in mind and thanks so 46:34 46:34 much for giving us the opportunity to 46:36 46:36 speak about this very important aspect 46:39 46:39 of the economic program uh here in Sri 46:43 46:43 Lanka yeah so thank you once again Peter 46:45 46:45 and Joel and maybe we meet again in 46:48 46:48 better times I'm sure we 46:55 46:55 will