Overview

  • AT A GLANCE

    Sri Lanka’s economic performance remained broadly satisfactory in 2016 and early 2017 although recent floods and droughts adversely affected macroeconomic performance. Policy measures supporting fiscal consolidation and monetary tightening contributed to an improved outlook, against the backdrop of the $1.5 billion IMF-supported program agreed in 2016 to meet balance of payment needs.

    The country has been relatively stable despite recent ministerial changes. The government is focusing on carrying out fiscal reforms, improving public financial management, increasing public and private investments, addressing infrastructure constraints, improving competitiveness, and addressing service delivery. 

    The World Bank Group is contributing to Sri Lanka’s transition to a more competitive, inclusive, and resilient upper-middle income country. Using a range of financing instruments, it supports reforms to promote macro-fiscal stability and competitiveness, inclusion and opportunities for all, as well as green growth opportunities, better environmental management and dealing with climate change.

    COUNTRY CONTEXT 

    Sri Lanka is a lower middle-income country of 21.2 million people with per capita GDP in 2016 of $3,835. Since the civil war ended in 2009, the economy has grown on average at 6.2 percent a year, reflecting a peace dividend and a commitment to reconstruction and growth, but there have been signs of a slowdown in the last three years.

    The economy is transitioning from being predominantly rural-based to urbanized economy-oriented around manufacturing and services. The government is carrying out fiscal reforms, improving public financial management, increasing public and private investments, addressing infrastructure constraints and improving competitiveness. It launched its Vision 2025 on September 4, 2017 to strengthen democracy and reconciliation, inclusive and equitable growth and ensure good governance.

    Sri Lanka has made significant progress in human development. Social indicators rank among the highest in South Asia and compare favorably with those in middle-income countries. The national poverty headcount ratio declined from 15.3 percent in 2006/07 to 6.7 percent in 2012/13 although disparities remain.  Unlike other South Asian countries, Sri Lanka is facing an aging population. 

    In 2016 Sri Lanka was hit with the worst drought in four decades that continued into 2017.  In May 2017, Sri Lanka experienced one of the worst floods in 14 years, subsequently leading to a 4.3 fold higher than average number of dengue cases for the same period between 2010 and 2016.

    RECENT ECONOMIC DEVELOPMENTS

    Sri Lanka’s macroeconomic performance remained broadly satisfactory in the first half of 2017 despite natural disasters and challenges posed by a complex political environment. Year-on-year growth decelerated to 3.8 percent in the first quarter of 2017 following the 4.4 percent reported in 2016, driven mainly by weak performance of drought-hit agriculture and industry sectors.

    The drought also likely contributed to higher poverty levels, through reduced agriculture income. More than 520,000 families were affected in 20 districts, obliging the government to implement relief programs. Because of low international commodity prices, inflation remained around the mid-single digit level despite supply disruptions and measures to increase government revenue.

    On the external front, the benefit of low oil prices was offset by greater imports of food and petroleum due to the drought, while the impact on agricultural exports was eased by increased tea prices. Weak external liquidity was mitigated by the sale of sovereign bonds and by syndicated loans, as well as purchases by the monetary authority in the foreign exchange market.

    Official reserves increased to a level equivalent to 4.0 months of merchandise imports by June 2017, after bottoming out in April at 3.0 months. However, the external current account deficit and continuously low FDI remain challenges to raising foreign ex­change in a structured way.

    Recent fiscal and monetary policy measures helped ensure a successful second review of the IMF- supported program in July 2017 and the disbursement of the third tranche of $167.2 million from the program. The revenue-led fiscal consolidation was strengthened with changes to the VAT Law and improved revenue administration. Parliament passed a new Inland Revenue Law to make the tax system more efficient and equitable, and generate resources for social programs.  Monetary policy was further tightened to dampen continued monetary growth and support external sector stability.

    ECONOMIC OUTLOOK

    The economy is projected to grow by 4.6 percent in 2017 and marginally exceed 5.0 percent in the medium-term, driven by private consumption and investment. The government is committed to implement an ambitious medium-term reform agenda aimed at improving competitiveness, governance and public financial management that would achieve long-term benefits.

    Continuation of reforms along with the IMF program will add to confidence while the government has shown its readiness to promote stability with appropriate monetary policy. These developments have contributed to an improved outlook.

    External risks to the outlook include disappointing growth in key countries that generate foreign exchange inflows to Sri Lanka, steeper than expected global financial conditions and faster than expected rises in commodity prices. On the domestic front, the country is faced with possible delays in implementing reforms and the potential for natural disasters.

    Last Updated: Oct 11, 2017

  • THE WORLD BANK GROUP AND SRI LANKA

    The World Bank Group has supported Sri Lanka’s development for nearly six decades. Although in many ways it is a development success story, Sri Lanka still faces critical challenges as it strives to become an upper middle-income country. WBG’s Country Partnership Framework (CPF) for FY2017-20, endorsed by the Institution’s Board of Directors in June 2016, is based on the 2015 Systematic Country Diagnostics (SCD) and the country’s priorities.

    The World Bank Group supports Sri Lanka’s transition to a more competitive, inclusive, and resilient upper-middle income country include promoting macro-fiscal stability and competitiveness and creating conditions where there are opportunities for all. There is also a focus on seizing green growth opportunities, improving environmental management and adapting to, and mitigating, the impact of climate change. Sri Lanka graduated from IDA in FY2017 and is receiving IDA transition financing during IDA18 period (FY2018-20).

    As Sri Lanka works to end extreme poverty and promote shared prosperity some of its key challenges identified in the 2015 SCD are to achieve fiscal sustainability, enhance competitiveness and promote more and better jobs for the bottom 40 percent, advance social inclusion for disadvantaged people and attain longer term sustainability. Strengthening governance is a cross-cutting challenge.

    The Government’s Vision 2025 largely confirmed the SCD findings and identified four main constraints to growth: (i) structural weaknesses in a growth model which did not foster productive investments, competitiveness and innovation; (ii) inward rather than outward- and export-led growth, which would leverage the global market and international supply chains; (iii) public finances dogged by increasing debt repayments and inefficient State Owned Enterprises which crowded out more productive investments and development spending;  and (iv) regulatory barriers that stifled private sector development and job creation. The World Bank is supporting government reforms aimed at addressing these constraints.

    WORLD BANK PROGRAM

    The current active World Bank portfolio comprises 16 projects with a total net commitment value of $1.98 billion (14 IDA, 1 IBRD and 1 Blend). The World Bank has provided a mix of financing – investment project, development policy, and program-for-results – to meet the development needs. The first development policy financing was approved in July 2016 and focuses on policy reforms to strengthen the country’s trade and competitiveness. It is co-financed by JICA, and complements IMF’s Extended Fund Facility. The first program-for-results financing was approved in May 2017 to support the government’s program to improve higher education.  Urban and rural development sectors account for the largest share of the portfolio both in terms of number of projects (28 percent) and total commitment (38 percent). The second largest sector of engagement is education, followed by water. 

    The World Bank seeks to respond flexibly to the emerging needs of the country. Following a garbage dump collapse disaster that buried nearly 150 homes and killed about 30 people in Metro Colombo in April 2017, the World Bank is preparing an emergency operation to stabilize the site and support more sustained management of solid waste. This initiative is co-financed by the AIIB. It endeavors to coordinate with development partners by co-financing projects and leveraging private sector resources where opportunities arise. The World Bank and IFC are closely collaborating to support the Government’s efforts to strengthen the corporate governance and capacity of State Owned Enterprises.

    The World Bank Group, taking into account the SCD and the Government’s Vision 2025, is looking to address the constraints to growth. It is providing policy advice, analytical support and technical assistance, funded both through trust funds and its own budget, to assist government efforts on   fiscal reform, the governance and efficiency of public enterprises, pension reform, trade and competitiveness, and sustainable urban development.

    WORLD BANK – IFC COLLABORATION

    IFC’s activities in Sri Lanka support the World Bank Group’s CPF goals. By working closely with the private sector, the government, and the World Bank, IFC focuses on facilitating inclusive growth by attracting private sector finance.

    IFC in Sri Lanka addresses key development gaps by focusing on financial and social inclusion, infrastructure, productivity, and sustainability. To foster inclusion, IFC is working on increasing access to finance, especially to SMEs and women, and seeking opportunities to help expand quality healthcare, affordable housing, and training and education for skills development. IFC launched a “Women in Work” program to demonstrate that corporate performance can improve by closing gaps between men and women in the private sector. IFC’s support for sustainable infrastructure aims to improve electricity service, complete critical last mile infrastructure, and revamp logistics and services infrastructure. In sustainability, IFC will promote renewable solutions, narrow the green/affordable housing gap and support climate change adaptation and resource efficiency applications IFC is also targeting sectors with significant job creation impacts especially agribusiness, tourism, and pharmaceuticals.

    As of June 30, 2017, IFC’s total committed investment portfolio stood at about $334 million. IFC also has an advisory program comprising 12 portfolio projects with a combined value of $12.5 million. IFC’s advisory projects are helping boost access to finance and insurance, build business skills for entrepreneurs, develop supply chains, and promote the growth of tourism.

    MIGA

    MIGA has no exposure in Sri Lanka. However, the Agency stands ready to consider productive projects, across sectors, as appropriate opportunities emerge. In assessing potential transactions, MIGA will coordinate closely with the World Bank and IFC, to maximize collaboration across the World Bank Group.

    Last Updated: Oct 11, 2017

  • Education

    Sri Lanka’s achievements in education have been impressive, including universal access and participation in primary education, high enrollment in secondary education, and gender parity in general education. The primary education net enrollment rate is 99%, the primary education completion rate is over 95 percent, and gender parity in the education system is high compared with many other South Asian countries with an equal proportion of girls and boys enrolled in primary education and a slightly higher number of girls than boys in secondary education.

    The World Bank is helping to identify and address the particular challenges to skills development in Sri Lanka. The work informed a Skills Development Project, approved in May 2014, which aims to expand the supply of skilled and employable workers by increasing access to quality and labor market–relevant training programs. World Bank support for the education sector is also being extended through the Transforming the School Education System project. This project promotes equitable access to secondary education, working to improve the quality of education and strengthen governance and delivery of education services. The Sri Lanka Early Childhood Development Project will increase the ability of disadvantaged children to access learning opportunities. It will also contribute to improve learning outcomes and support Sri Lanka to become more competitive in the global economy in the long run.

    Health

    The World Bank has been supporting Sri Lanka’s health sector through analytical work and credits from the International Development Association since the late 1980s.

    Sri Lanka’s health system has a long track record of strong performance. For at least 50 years it has achieved much better outcomes in maternal and child health and infectious disease control than would have been predicted by its income level. The remarkable success in reducing maternal and infant mortality to very low levels (30 per 100,000 and 8 per 1,000 live births, respectively) in the last half-century is in part due to effective and integrated maternal and child health services.

    A national health sector program is currently being supported under a $200-million Second Health Sector Development Project (approved in FY2013), designed to improve the standards of performance of the public health system and enable it to better respond to the challenges of malnutrition and NCDs. The project is also supporting innovation, results monitoring, and capacity building in the health sector.

    The project supports the achievement of 20 results (a subset of the National Health Development Plan results). So far, after three years of implementation and results reporting (2015), several third-year targets have been met or surpassed. Of particular note:

    • 58% percent of the 3,883 Maternal and Child Health (MCH) clinics across the country supported to reach full capacity to provide MCH services have achieved the target; 260 Medical Officer of Health areas out of 330 have at least three Health and Nutrition Community Support Groups, surpassing the target.
    • 55% of the 330 Medical Officer of Health areas report having at least two functioning Healthy Lifestyle Centres, surpassing the target.
    • National guidelines for rehabilitation services for disabled persons have been developed.
    • 62% of the 855 primary health care facilities have one-month buffer stock of 16 essential NCD drugs, surpassing the target.
    • The percentage of hospitals linked to the quality assurance program for laboratory tests conducted by the Medical Research Institute surpassed the target, reaching 94%.
    • Guidelines for Quality Management Units were prepared and training for administration of the guidelines was completed, with Quality Management Units functional in more than 95% of secondary care hospitals.
    • 55% of centrally managed hospitals are reporting indoor morbidity and mortality data electronically, surpassing the target.

    Urban Development

    Sri Lanka’s economic growth has been primarily driven by the Colombo Metropolitan Region (CMR), which currently generates 45 percent of the country’s GDP and is home to 28 percent of its population. Sustainable growth and long-term prosperity are expected to result from a more balanced distribution of economic opportunity, which in addition to Colombo also includes other major urban centers such as Kandy, Galle, and Jaffna. The World Bank is supporting Sri Lanka to implement its urbanization and rural-urban integration agenda.

    The Metro Colombo Urban Development Project (MCUDP), approved in 2013, is assisting the Colombo Metropolitan Region to upgrade basic urban infrastructure and to implement an innovative integrated urban flood control and urban wetland management approach. Results achieved: 3 km of primary canals have been completed, 2 micro-drainage subprojects have been implemented, and 29 km of roads that have been built or rehabilitated based on prescribed standards. The newly opened Beddegana Wetlands Park aids in flood control and allows the public to experience the city’s unique urban wetlands. In addition, the project rehabilitated the Town Square and Viharamahadevi Parks, which included the creation of playgrounds, bicycle paths and public facilities.

    The Strategic Cities Development Project and the Additional Financing to the project (approved in May 2016) are expanding the approach to urban infrastructure upgrading to Kandy, Galle and Jaffna—three strategic city regions in the center, south, and north—and supporting investments in urban water supply, sewage and drainage systems, cultural heritage rehabilitation, urban transport and traffic management, among other areas.

    Environment, Climate Change and Disaster Risk Management

    In recognition of the social and economic effects of climate-related hazards, the government has made it a priority to strengthen the country’s resilience to natural disasters and climate change. Responding to the government’s expression of interest for assistance in this regard, a comprehensive program of support involving adaptation-enhancing investments and a Catastrophe Deferred Draw-Down Option (CAT-DDO) was prepared and approved in FY14. To increase resilience, physical investments will be financed to address short-term infrastructure weaknesses, coupled with a contingent credit line to safeguard against immediate fiscal impacts of a disaster.

    Last Updated: Apr 10, 2017

Api


LENDING

Sri Lanka: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

MULTIMEDIA



PHOTO GALLERY

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Additional Resources

Country Office Contacts

Colombo
+94-11 2448070
2nd Floor, DFCC Bldg
73/5 Galle Road
Colombo 3, Sri Lanka
infosrilanka@worldbank.org
Washington
+1 202-473-8955
1818 H Street NW Washington, DC 20433
infosrilanka@worldbank.org