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Sri Lanka Receives $334M in IMF Funding
Mayu Saini
6 min read
Apparel makers in Sri Lanka who have been watching the economic indicators with concern heaved a sigh of relief last week.
The International Monetary Fund (IMF), which agreed a bail-out worth approximately $3 billion for Sri Lanka in 2022, proved satisfied with its second review of the country and released approximately $336 million in funding to boost the island nation on its path to economic recovery.
“The performance under the program has been strong,” the report noted, commending the focus on “wide-ranging reforms to restore macroeconomic stability and debt sustainability, maintain price stability, safeguard financial stability, rebuild external buffers, and implement growth-oriented structural reforms, including by strengthening governance.”
The emerging data has been heartening: 3-percent growth in the second half of 2023, and growing foreign exchange reserves at $5.5 billion by end-April 2024—all reassuring signs of recovery for the island nation, which declared bankruptcy two years ago.
However, pressures are high.
Manufacturers reeling from the high costs of production told Sourcing Journal that they were “waiting and watching” with the looming threat of more change, as presidential elections are expected to be held before mid-October this year.
There is also both apprehension—and condemnation—for the impending labor law reform, which is widely expected to come about before the scheduled election. Industry analysts said that it was clear that the labor reforms were an essential part of the IMF-aid package, a point noted in the IMF review itself.
“Key priorities include steadfast implementation of the governance reforms.” Kenji Okamura, deputy managing director, IMF said in a statement. “Trade liberalization to promote exports and foreign direct investment; labor reforms to upgrade skills and increase female labor force participation; and state-owned enterprise reforms to improve efficiency and fiscal transparency, contain fiscal risks, and promote a level playing field for the private sector” were among the key objectives he mentioned.
“Everyone agrees that the labor law is overdue to be overhauled—it has a whole series of regulations from historic times,” Yohan Lawrence, secretary general, Joint Apparel Association Forum (JAAF) told Sourcing Journal. “Everyone is speculating, and it is all conjecture. Right now, it is only a working draft and we will have to wait and see till a final draft is issued.”
Not everyone is content to wait. Global protests have been emerging even before the final draft is out; on May 29, a letter from Clean Clothes Campaign (CCC), Amnesty International and Human Rights Watch to the Sri Lanka government noted “serious concerns about imminent and sweeping changes to Sri Lankan labor laws.”
“We fear for the future of Sri Lanka’s garment industry—not just for workers but also how the proposed reforms would negatively impact brands’ human rights risk assessments and responsible sourcing— if these changes are pushed through,” the letter noted.
Ineke Zeldenrust, international coordinator for the Clean Clothes Campaign said the group “follows its network members and partners in Sri Lanka in expressing deep concern about the proposed labor law changes in Sri Lanka as well as the way that due process and workers voices have been ignored over the months that this proposal has been circulating….Sri Lanka risks to adopt laws that are in clear violation of international labour and human rights standards. In this time of cost of living crisis, workers need protection by the law and the power of union organizing more than ever.”
Aruna Kashyap, associate director for the Economic Justice and Rights Division, Human Rights Watch said the concerns expressed in this letter reflect those repeatedly expressed through protests and raised by a broad coalition of unions and civil society organizations in Sri Lanka. “Human Rights Watch joins other organizations urging the Sri Lankan government and members of parliament to halt the ongoing efforts to seriously weaken Sri Lanka’s labor protections,” she said. “As domestic groups have warned repeatedly, pressing ahead in a non-transparent, non-consultative way would be disastrous for developing laws that better protect labour rights and improve Sri Lanka’s garment industry.”
The letter to the government stated, “The proposed draft Act contains many articles weakening the rights and protection of workers by removing international minimum standards and rights. It increases factory management’s power over workers by taking away protections against excessive overtime and arbitrary dismissal and weakening workers’ right to freedom of association. Among the proposals are reforms that seek to remove overtime pay for a workday that exceeds eight hours (chapter 3.31 and 33.1); remove the twelve-hour-per-week overtime limit (chapter 3.31).”
It further stated that “The Sri Lankan garment industry has tried to set itself apart from other garment producing countries with the slogan ‘Garments Without Guilt.’ The imminent reforms threaten to make Sri Lankan’s garment factories synonymous with the worst forms of sweatshop labour instead.”
“We therefore urge you to immediately halt the existing labor reform process and start an alternative process, which is transparent, consensus-based, includes all tripartite stakeholders, and meets the established Sri Lankan democratic processes on consultation, translation, and publication so all workers and their representatives to enable their effective participation, to work towards a unified labor code that respects international labor rights standards,” the missive read.
For their part, manufacturers told Sourcing Journal that they were “watching the process closely,” and choosing not to comment until “something more definitive” emerges.
Rantha tissera, treasurer of the Sri Lanka Chamber of Garment Exporters (SLCGE) reiterated the point. “It is still being tabled,” he said, while adding that the perspective of manufacturers is that it’s time that the labor law changes. “These are difficult times for production. Even though the cost of production has come down from last year, it has tripled compared to 2018,” he added.
Labor leaders on the ground, meanwhile, are preparing themselves for a more active social dialogue, making clear that they will not be pushed aside in the general run for political gain, to be completed before the elections
“The labor law is a very serious proposal—it is a so-called tripartite process, but unions are not being properly consulted,” said Anton Marcus, joint secretary of the Free Trade Zones & General Service Employees Union in Sri Lanka.
“The labor minister has approved a document, which has been made in discussion with what they describe as labor unions. However, these are not representative and trade unions will challenge the draft in the Supreme Court,” he said, adding that trade unions have filed complaints to the International Labour Organisation (ILO) in Geneva. “They have to follow the process of social dialogue,” he said, noting that worker awareness too is on the rise.
That sentiment was also echoed by recent support provided by workers of the Sumithra Group in Hasalaka to workers across the world in the United Kingdom (U.K), as both sides manufacture for the same brand: Asda. The workers at the Sumithra factory went back to work in end-April after a prolonged protest, after an agreement to arbitration by the government.
“Workers are very hopeful about having their voices heard,” Marcus observed.
