-By LeN Economic Correspondent
(Lanka-e-News -19.May.2025, 11.10 PM) When the International Monetary Fund (IMF) brokered a rescue package for bankrupt Sri Lanka last year, it came armed with its usual prescription of fiscal discipline, austerity, and structural reforms. Sri Lankans, weary after years of corruption, mismanagement, and soaring inflation, were told that the IMF was here to restore order — to help the country “live within its means.”
But now, as the dust settles, a troubling question is emerging: Whose interests is the IMF really protecting?
In recent weeks, the IMF has raised red flags about one particular tax concession granted under Sri Lanka’s foreign investment regime: the Port City Colombo project — a flagship initiative led by Chinese investors, inked in 2008. The project, which was heralded as a game-changing financial hub and has already attracted over a billion dollars in pledged investment, was granted a special legal and tax framework to entice international stakeholders.
Yet, the IMF, in what appears to be a sudden and selective awakening, now says these tax concessions contravene Sri Lanka’s restructuring commitments. The Fund is pushing the government to reverse these incentives — even threatening to withhold future tranches of financial support if Colombo doesn’t comply.
But here’s the problem: while the IMF takes aim at Port City, it has turned a blind eye to far bigger, older, and more entrenched tax giveaways — particularly those extended to the apparel sector under Sri Lanka’s Board of Investment (BOI) scheme. That industry, which has operated for nearly four decades under sweeping tax exemptions, continues to import billions of rupees worth of raw materials, machinery, and even luxury vehicles — all duty-free.
The Port City project, though controversial for its Chinese backing and semi-autonomous governance framework, is not unique in receiving tax incentives. It simply represents the latest — and perhaps most high-profile — attempt by Sri Lanka to attract foreign direct investment (FDI) amid mounting debt and economic stagnation.
Yet the IMF seems disproportionately concerned with this one instance. One senior government source, who spoke on condition of anonymity, said:
“We were shocked. The IMF suddenly said, ‘This Port City concession is unacceptable.’ But they never once questioned four decades of tax-free imports by apparel giants like Brandix and MAS Holdings. It’s a clear double standard.”
Indeed, under BOI rules, apparel firms — which account for roughly 45% of Sri Lanka’s exports — are allowed to import fabric, buttons, zippers, high-tech machines, and yes, even air-conditioned luxury SUVs, all without paying a rupee in customs duty or VAT. These companies also benefit from sweetheart land deals, subsidised electricity, and zero taxation on profits if routed through designated zones.
The results have been extraordinary — for them. Many apparel tycoons have built private jets, overseas villas, and offshore holdings while their workers earn below subsistence wages in “economic zones” ring-fenced from labour protections.
Yet, the IMF remains eerily silent.
Even more baffling is the case of a $500 million loan issued by a Sri Lankan state bank to a Moldavian company operating in the Maldives — a loan that was guaranteed by the Maldivian government. When that business collapsed, Sri Lanka was legally entitled to recover the money under the sovereign guarantee. But during the IMF-led restructuring of Sri Lanka’s debt, this liability was not pursued. Nor did the IMF instruct the Sri Lankan government to claim the $500 million — a sum that could have paid for two full instalments of Sri Lanka’s IMF repayment schedule.
The Maldivian government is now on the verge of its own IMF bailout. If that materialises in September, Sri Lanka will have little leverage to enforce the guarantee.
A senior Sri Lankan lawyer involved in the country’s Taxpayers’ Alliance told The Guardian:
“This is outrageous. A legally guaranteed loan has been allowed to evaporate while the IMF demands cuts to subsidies, increases in VAT, and even more hardship for our poor. Why hasn’t the IMF told us to go collect what we’re owed?”
The IMF’s silence on these glaring gaps has raised suspicions about its political motivations. While critics stop short of calling the institution explicitly biased, many believe the Fund is more comfortable pressuring Global South countries to undo Chinese-linked deals than it is challenging Western-aligned corporate empires.
And therein lies the crux: Port City is a Chinese-backed initiative — and China, despite being Sri Lanka’s biggest bilateral creditor, has long resisted IMF-style conditionalities. By targeting Port City, the IMF can score geopolitical points — and conveniently sidestep politically awkward conversations about BOI-approved tax abuse and uncollected liabilities like the Maldivian loan.
Dr. Asha Senanayake, an economist at the University of Peradeniya, summed it up:
“The IMF cannot claim the moral high ground on fiscal discipline if it only targets concessions it finds ideologically inconvenient. If they want fairness, they must demand reforms across the board — not just where China is involved.”
To make matters worse, the IMF program itself — worth just $3 billion over four years — has proven to be, in the words of one government official, “peanuts” compared to the structural sacrifices demanded of Sri Lanka. Of the total, only $330 million has been disbursed to date, while the rest hinges on ever-moving performance targets.
Meanwhile, the Fund’s debt restructuring arrangement has seen China — which held over $7 billion in Sri Lankan bonds — accept massive write-downs, even as commercial bondholders based in Europe and the US negotiate softer terms. The Port City crackdown, then, appears as an extension of the same asymmetry.
Even some IMF insiders have quietly acknowledged the inconsistency. One former Fund advisor, who spoke to The Guardian on background, admitted:
“Yes, there are political pressures at play. The optics of Chinese mega-projects in developing countries draw a different level of scrutiny — often unfairly.”
The solution is not to defend every tax incentive or to blindly oppose IMF intervention. But if the Fund truly believes in fiscal sustainability, it must advocate for consistent, transparent policies — including the overhaul of outdated BOI privileges that have drained public revenue for decades.
As many Sri Lankan economists now suggest, a more equitable system would require all industries — apparel, IT, tourism, or real estate — to pay duties on imported goods. They could reclaim those duties through export tax credits after proving value addition. Such a system would reduce abuse, increase government revenue, and ensure that concessions are tied to actual performance, not merely historical privilege.
Moreover, the IMF should push the Sri Lankan Finance Ministry to aggressively pursue the $500 million Maldivian sovereign-guaranteed loan. Whether through diplomatic pressure, international arbitration, or even the freezing of assets held by the Maldivian state in Sri Lanka, the money must be recovered. Anything less would amount to a state-sanctioned write-off — one paid for by struggling Sri Lankan households.
Civil society is now gearing up for a reckoning. The Sri Lankan Taxpayers’ Alliance is reportedly preparing legal action against the government for negligence over the Maldivian loan. Activist groups are also planning to petition the IMF directly, demanding that it address the BOI tax exemptions and push for recovery of the $500 million.
An online petition, titled “IMF: Stop Picking on China, Start Collecting the Real Money”, has gathered over 50,000 signatures in a week.
Samanthi Silva, a university lecturer from Galle, wrote:
“My electricity bill went up by 80% this year because of IMF conditions. But Brandix still imports its goods duty-free and sells to Zara. This isn’t fairness. It’s economic apartheid.”
Sri Lanka's economic collapse did not happen in a vacuum. It was the result of elite mismanagement, unchecked borrowing, and a culture of impunity. The IMF has a role to play in helping the country find its feet. But it must do so fairly.
By singling out Chinese-linked projects while ignoring the decades-long tax holiday of its Western-aligned corporate allies, the IMF undermines its credibility and perpetuates a dangerous imbalance.
Sri Lanka doesn’t need a referee who only whistles when one team scores.
It needs a real umpire — one that calls every foul, no matter who’s playing. Only then will the country — and its people — stand a chance at real recovery.
-By LeN Economic Correspondent
---------------------------
by (2025-05-19 22:01:47)
Read 7416 Times
Leave a Reply
0 discussion on this news