As of 2023, Sri Lanka’s Corruption Perceptions Index (CPI) stands at 34 out of 100, ranking 115th out of 180 countries. Since 2012, the country’s score has consistently remained below 40, underscoring its status as a highly corrupt nation.
The economic and opportunity costs associated with corruption remain significant, with consistent calls by the people for systemic reforms and an overall shift in attitudes in order to combat corruption. Meanwhile, President Anura Kumara Dissanayake and the Government have pledged for an administration free of fraud, corruption, and misuse.
Addressing a recent progress review meeting, the President emphasised that the public attributed the country’s economic collapse to corruption, fraud, and mismanagement. With the people’s mandate to address these issues, he expressed his commitment to uphold the trust placed upon him to combat corruption and fraud in the public sector, urging public servants to execute their duties diligently.
Implementation concerns
The National Audit Office (NAO) is one of the main bodies in charge of combating corruption.
Speaking to The Sunday Morning, Auditor General W.P.C. Wickramaratne emphasised the need for better implementation of recommendations.
“The primary challenge in the country lies in the lack of implementation. There are significant gaps in the process and a notable weakness in executing recommendations. Immediate investigations and legal proceedings can instil a sense of fear regarding corruption.
“Corruption can and should be reduced, although complete eradication may not be feasible. Nevertheless, attitudinal changes and consequences can significantly contribute to curbing corruption. Additionally, there is a need for an enhancement of efforts by the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) as well,” he said.
He further expressed concern over the lack of coordination among institutions tasked with addressing corruption.
“If the Auditor General were granted more power to act on recommendations, it would be beneficial. This proposal is currently under review, with certain revisions to the Audit Act being considered based on International Monetary Fund (IMF) diagnostics. Such changes would aid in recovering Government losses,” he noted.
Economic assessment
A recent special audit by the Auditor General on fund management at the Sri Lanka Customs (SLC) revealed a State revenue loss of Rs. 181.51 million and an attempted tax evasion of Rs. 326.02 million.
According to a 2021 study by Verité Research, Sri Lanka loses approximately 4% of its Gross Domestic Product (GDP) annually – around $3 billion – due to tax evasion. Moreover, research shows that corruption in public contracts can lead to losses of 10-25% of a contract’s value on average.
With public procurement expenditure estimated at 5% of GDP and an assumption of 20% cost escalation, this suggests an annual loss of about 1% of GDP due to corruption in public procurements, equating to roughly Rs. 300 billion for 2023. While reports estimate specific data, the true magnitude of economic losses resulting from corruption could be significantly higher.
Speaking to The Sunday Morning, former Auditor General H.M. Gamini Wijesinghe highlighted the extensive economic damage caused by corruption.
“When funds are misused without adding value, it leads to inflation, reduced growth, and an overall decline in the effectiveness of investments. Many investments are marred by corruption and the capital is not yielding the expected return, ultimately decreasing the rate of growth, leaving the country struggling with loans that have not been properly utilised,” he said.
He also pointed to excessive powers granted to the President by the Constitution as a major concern. To combat corruption effectively, he added that the constitutional powers of the President should be curtailed, establishing a system of checks and balances.
Although the Auditor General’s Department identifies cases of corruption, its role is limited to reporting them to Parliament, which often lacks the capacity to pursue legal action. Wijesinghe noted that many of the cases reported involved politicians who used their influence to block legal proceedings.
“Seventy-five percent of corruption is conducted by politicians, presidents, and the Cabinet. There have been numerous unsolicited contracts awarded over the past 10-15 years that are prime examples of malpractice, such as projects like the Hambantota Port, Sooriyawewa stadium, Lotus Tower, and Norochcholai Power Plant,” he said.
He further stressed that unsolicited contracts should be removed, and that the National Procurement Commission, which currently has limited authority, should be significantly strengthened to tackle such issues.
“For foreign investors to feel secure, there must be a stable legal system, long-term policies, and protection for their capital. Tax regulations should remain consistent for at least five years to create a predictable business environment. Currently, the absence of such assurances makes Sri Lanka less attractive to investors,” he added.
Lack of mechanisms to analyse cost of corruption
A national survey conducted by the Bar Association of Sri Lanka (BASL) in 2014 identified corruption as an “extremely serious” concern that affected Sri Lanka’s appeal for Foreign Direct Investment (FDI).
Moreover, a 2019 survey and interview study on corruption revealed a widespread belief in its prevalence throughout the country. With over one-third of respondents having personal experiences with corruption, over 85% reported that it frequently occurred in Government hiring and contracts, highlighting financial leakages.
Meanwhile, speaking to The Sunday Morning, Transparency International Sri Lanka (TISL) Communications and Social Media Manager Maleen Dhanushka stated there was a lack of comprehensive analysis to quantify the precise economic losses incurred by corruption in Sri Lanka. However, several isolated incidents and reports provide insights into the significant impact that corruption has on the economy.
Accordingly, he noted several noteworthy instances. Reports indicate that outsourcing online visa services this year to VFS Global and IVS-GBS could generate approximately $ 51 million annually, assuming an anticipated tourist arrival rate of around two million. Over a span of 12 years, this could lead to an astounding total loss of $ 612 million in State revenue. A forensic audit has been initiated to uncover the precise losses to the State.
Additionally, with regard to the Mannar wind power project awarded to Adani Green Energy Ltd. this year, concerns encompass its lack of transparency, the absence of competitive bidding, overpricing, and environmental implications.
Moreover, a 2019 forensic audit report of the Central Bank of Sri Lanka (CBSL) bond scam of 2015 assessed the losses from this scandal at approximately Rs. 10 billion, while the Airbus scandal led SriLankan Airlines to face a loss of around $ 116 million (approximately Rs. 23 billion) due to a bribery-related contract with Airbus SE, which required substantial cancellation fees.
Dhanushka noted that while these examples offered estimates, the actual extent of the economic loss due to corruption scandals may be much greater, underscoring the urgent need for thorough analysis.
Moreover, he highlighted allegations of corruption surrounding the National Medicines Regulatory Authority (NMRA) and the former Minister of Health, which revealed abuses of procurement guidelines and the misuse of emergency procurement processes to acquire medical supplies from two Indian private companies.
The costs of holding people accountable for such misconduct further strain the Government, alongside the ongoing pressure on the healthcare system. Dhanushka noted that combating corruption could allow the Government to circumvent the substantial expenses associated with maintaining oversight bodies and law enforcement.
Among many initiatives, TISL has notably advocated a revamp of anti-corruption legislation, culminating in the passage of the new Anti-Corruption Act No.9 of 2023, and continues to promote effective implementation of the act.
Tackling corruption
Speaking to The Sunday Morning, University of Colombo (UOC) Department of Economics Professor Lalithasiri Gunaruwan addressed the issue of corruption within the State sector, focusing on procurement-related corruption. He explained the economic impact of corruption in two dimensions, involving the loss to the Government in terms of rupees and dollars.
“Internally, since this money remains within Sri Lanka, it transfers from the Government to the private sector or to a citizen’s pocket. While this type of corruption is wrong and must be curbed, its impact is considerably lower as it does not directly affect foreign exchange. However, corruption tied to international deals is far more damaging when resources leak out of the country,” he said.
He further emphasised that this form of corruption led to dollar debt creation, as escalated dollar payments strained Sri Lanka’s current account. This leads to the shortage of dollars to import essential items and the accumulation of foreign debt.
A key issue, according to Prof. Gunaruwan, is large projects being awarded to foreign companies without tendering. In the past, there was a national preference for local companies in such contracts, even when their bids were slightly higher.
However, this practice and competitive bidding have been discontinued, leading to direct negotiations with foreign companies, which has opened the door to corruption. He stressed that while internal corruption was harmful, corruption involving foreign payments was far more detrimental to the economy.
In order to tackle corruption, Prof. Gunaruwan suggested several measures, starting with transparent procedures and proper procurement planning. He emphasised the need for a development financing mechanism with implementation of strict financial regulations and called for the legal system to recognise that the true owners of public finances were the citizens. He further stated that strengthening the national planning process for projects and reinforcing existing procedures could help mitigate the problem.
Laws, regulations and enforcement
Former Director General of the CIABOC Sarath Jayamanna, PC told The Sunday Morning that there had been various studies demonstrating a nexus between corruption and the development of a country. For instance, Singapore, which ranks as the least corrupt country in the world, is also placed among the top developed nations.
In Sri Lanka, bribery and corruption are treated as different offences. However, he stated that the challenge had always been in obtaining evidence, especially against high-ranking officials. Although white collar public servants are the officials most involved in bribery, they rarely come forward on account of the system allowing this practice for years.
“In terms of corruption, looking at major projects and procurements, we often see that approval is not given to the most suitable bidder, which is driven by underlying bribery. To prevent such practices, we need to implement strong and clear regulations in every Government department.
“Our previous strategy of investigating and prosecuting corruption alone has proven insufficient. We need to prevent opportunities for bribery and corruption by fostering transparent systems within all Government departments,” he said.
Jayamanna noted that the new anti-corruption legislation had empowered the CIABOC to work with public authorities and Government departments to improve transparency. He also addressed the improvements that were to be made, such as establishing integrity officers and transparent processes, and addressed the significance of online systems which could reduce corrupt practices.
Emphasising challenges in combating corruption, Jayamanna noted issues concerning the independence and efficacy of the commission as it was treated almost like another Government department. He added that the CIABOC could now receive funding by submitting proposals to the Government and hire experienced, professional, and expert investigators.
“The new Anti-Corruption Act is very effective. We have also introduced several mechanisms with several recommendations from the IMF. But merely introducing the law won’t suffice. I hope the new Government will take serious note of this and strengthen the CIABOC as well.
“We have also nearly finalised the Proceeds of Crime Law, and I hope it will be presented to Parliament in the coming months. This legislation is another requirement set forth by the IMF,” he said.
Jayamanna stressed that no investor would come to Sri Lanka in the backdrop of a corrupt system for obtaining permits and licences, while further emphasising the need for a single venue where all approvals could be processed.