IMF Staff Country Reports

This Selected Issues paper aims at quantifying the economic benefits of comprehensive governance reforms through model simulations, supported by selected case studies in Sri Lanka. The paper provides an overview of the corruption vulnerabilities and governance weaknesses in Sri Lanka. Following the discussion of a theoretical framework that illustrates the channels through which governance reforms generate economic gains, the paper quantitatively simulates the macroeconomic impact of governance reforms using a dynamic general equilibrium model under alternative reform scenarios. A section in the paper complements the simulation with case studies. Support from the highest political level is crucial to ensure durable success of governance reforms. In countries with widespread corruption, many groups may feel that they are benefitting from it.