CB Wage Scandal – What is IMF position? Good governance?

 

IMF bailout programme for Sri Lanka

We all know that Sri Lankan Parliament has approved the IMF financial programme 2023-2026 as the only option available to rescue the country from its economic crisis. 

As per programme information, it rests on six pillars listed below.

  • Advancing Revenue-Based Fiscal Consolidation, Reforms to Social Safety Nets, Fiscal Institutions, and State-Owned Enterprises

  • Restoring Public Debt Sustainability

  • Restoring Price Stability and Rebuilding External Buffers

  • Ensuring Financial Stability

  • Reducing Corruption Vulnerabilities

  • Raising Potential Growth

All these pillars are required to be constructed and fortified by a large number of policy actions. Whether such policy actions will guarantee the resolution of the economic crisis is a separate subject to be studied at the progress review of the programme implementation.

Key direct stakeholders of the IMF programme are the Ministry of Finance, Central Bank, Cabinet and Parliament.

The fifth pillar - Reducing Corruption Vulnerabilities

The IMF released a report of governance and corruption for Sri Lanka to assist the authorities taking policy actions on this pillar. This is appropriate as poor governance and corruption are generally identified as the major source of the present economic crisis confronted by the country. 

Therefore, there is no secret that the government or its key IMF stakeholders are taking several policy measures towards fortifying of this pillar.

Central bank sugar high wage hike

Information reported from the Cabinet, Parliament and social media since the beginning of March shows wide allegations over sugar high wage hike suddenly implemented by the CB Governing Board for its employees.

Wage hikes given across the classes of employees as reported in the media are as follows (discrepancies in numbers are reported in the media).

  • Percentage hike – from 30% to 77%. These are based on salary scales of employee classes. If actual salaries of employees are considered, percentages will be greater.

  • Gross monthly amount increased – from Rs. 43,054 (lowest class scale– Minor Employee) to Rs. 751,757 (Lowest scale – Deputy Governor)

  • New gross salary – Rs. 188,827 (lowest Minor Employee) to Rs. 1,728,419 (lowest Deputy Governor)

All sections of the society have criticized this extent of wage increase on all grounds such as legal compliance, social ethicality and state policy consistency in the present IMF conditions-based rescue package.

However, the Governing Board of the CB made an unethical defense for the wage hike by hiding behind the autonomy given to the CB under the IMF- sponsored new CB Act enacted into law on 14th September 2023. This has sparked nation-wide concerns over the deceitful use of the CB autonomy for internal benefits and not for national objectives relevant at the present time.

In addition, the media reported on significant amount of interest payment (29.27%) to provident fund balances of the CB employees as compared to smaller payments to EPF members (9%) where both funds are managed by the CB Governing Board. Today, the media reported a Fundamental Rights Application filed before the Supreme Court on this public policy discrimination.

Issues in governance and corruption over the CB wage hike

All evidence proves that the CB wage hike is a serious lapse in governance of the country and corruption prevention.

  • The CB is a key stakeholder of the IMF-six pillar financial programme with fifth pillar as anti-corruption.

  • The CB does not seem to have a good internal control system to promote good governance and fight internal corruption of policies. The CB’s Monetary Policy Board and Stakeholder Engagement Committee have got no involvement in this wage policy despite its implications on the country’s monetary conditions, inflationary pressures and ethics on general public.

  • The conflict of interest arising from the wage hike is very high as the CB money printing monopply is abused for benefits of own members where conflict of interest is a major route of bad governance and corruption in any organization.

In this context, the CB wage hike is detrimental to the governance and corruption framework and related principles of the IMF 5th pillar as stated above.

Conclusion

An IMF mission is now in town for its programme review. Therefore, if the IMF is a principles-based independent financial institution respecting good governance and anti-corruption in its member countries, this IMF mission should declare its position on the current national issue of the CB wage hike. In the current context of national issue, the IMF cannot stay silent in friendly interests.

(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures. All are personal views of the author based on his research in the subject of Economics which have not intension to personally or maliciously discredit characters of any individuals.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 12 Economics and Banking Books and a large number of articles published. 

 

 

 

 

 

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