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. 

 

 

 

 

 

Comments

Post a Comment

Popular posts from this blog

Breaking News - 5 bank holidays for govt. debt optimization - The purpose is questionable?

Image
Last night, the CB Governor abruptly announced a bank holiday of 5 days from coming 29th. Accordingly, a special bank holiday was announced for 30th so that 4 actual holidays plus the special holiday become 5 days of bank holiday. I felt panic whether my deposits at banks could be unsafe. The reason is that, as I am aware from other countries, the authorities declare bank holidays to prevent any anticipated bank runs or panic depositors running to banks to withdraw their deposits unexpectedly. However, the purpose of the bank holiday declared above was described as the time period required for the completion of the government domestic debt optimization already announced in the media. The news presented by the CB Governor covered following items. The government and the Ministry of Finance have decided the time frame to complete the process of domestic debt optimization. The process is involved in getting approvals from the Cabinet, Finance Committee and Parliament. For this purpose, ban
Read more

Monetary Policy Insiders - The loss to the government on T bill auction on 31 May 2023?

Image
  This article shows how the monetary policy uses insider delas to make losses to the government on public debt management. The default of public debt for rework of debt contracts (so-called debt restructuring) is ample evidence for mismanagement of public debt by the Central Bank as the debt manager and fiscal agent since 1950. The monetary policy decision to cut policy rates by 2.5% in the afternoon 31 May 2023, the Treasury bill auction decided on same day afternoon along with a private issuance and the Treasury bill auction held on today (7 June) show how the Central Bank uses insider acts to cause losses to public funds. Treasury bill auction held on  31 May 2023 The Central Bank raised Rs. 160 bn at weighted average yields rates around 23%-25% (see the Table below) and a private issuance of Rs. 40 bn at the auction weighted average yields of 25.65% and 25.29%,  which are almost same yields on the previous week's auction held on 24 May 2023.   However, when the auction was in
Read more

Domestic debt optimization (DDO) - Why it is a flawed and deceptive proposal. Let us examine insights.

Image
  The media these days is full of news of the government's plan to restructure its domestic debt through the restructure of Treasury bonds held by superannuation funds led by the EPF. The central bank (CB) presents that this is the only option available to the government to make its domestic debt sustainable in order to avoid a near-term default similar to the default of foreign debt on 12 April 2022. The CB also presents that this is the best option available to superannuation funds to protect their interests of the members.  The Parliament's Finance Committee also took up this subject for consideration last week and seems to have given the concurrence after assessing the loss outcomes of the DDO proposal based on information submitted by the CB. Therefore, this short article is intended to shed some light on the false information presented by the CB on this subject despite the fact that the CB has been managing the public debt for the past 73 years. Can superannuation funds m
Read more