Sri Lanka

The Sri Lankan country context has evolved considerably since the FY09-12 Country Assistance Strategy (CAS) was prepared. The 26-year conflict ended in May 2009 and... Show More + resettlement of Internally Displaced Persons and demining are now largely complete. Sri Lanka is transitioning to middle income country status. The macroeconomic situation has improved. Sri Lanka can now focus on long-term strategic and structural development challenges. Key challenges include realigning public spending and policy with the needs of a middle income country, ensuring opportunities for all Sri Lankans to benefit from economic growth, ensuring appropriate resource allocations for the various tiers of Government, addressing the opportunities and impacts of the demographic transition, and enhancing the role of the private sector including provision of appropriate incentives for increasing productivity and exports. The Country Partnership Strategy (CPS) focuses on three areas: These are: (i) facilitating sustained private and public investment; (ii) supporting the structural shifts in the economy; and (iii) improving living standards and social inclusion. This CPS includes a careful assessment of key risks in the program, and steps to manage such risks. The first set of risks is related to the implementation environment and is reflective of Sri Lanka's specific development challenges. These include: (a) external shocks emanating from Euro area crisis; (b) macroeconomic and fiscal risks; and (c) natural disasters. The second set of risks is related to the design of the program itself. These include portfolio risks related to governance, procurement and financial management and risks related to government capacity to manage the increased volume of lending. The CPS presents ways to mitigate these challenges. Moreover, the flexible approach of this CPS will allow adjustment in the program in line with evolving Government priorities and country needs, within the broad direction for engagement outlined in this CPS. Show Less -

This Country Assistance Strategy (CAS) is being presented to the Board at a challenging time for Sri Lanka, in circumstances that are significantly different from t... Show More + hose in 2003 when the last CAS was presented. Echoing the broad-based sense of optimism at that time, the previous CAS was aligned to support the goals of peace, economic growth, and equity. In terms of developments the last five years have been sobering. After a temporary slowdown in armed confrontation following the 2002 ceasefire agreement (CFA), violence reemerged in 2005, resulting in renewed and major human suffering. The Rajapakse Government has made it clear that while it is pursuing military operations to eradicate terrorism, it is also fully committed to finding a political solution to address the legitimate grievances of Sri Lanka's minority communities. Although local government elections for the East were held in the spring of 2008, the political process towards increased devolution and local self-determination, spearheaded by the All Party Representative Committee, still has a considerable way to go. Despite the escalating conflict, economic growth has been strong since 2003: averaging 6.3 percent per annum. But macroeconomic imbalances, particularly high inflation and persistent budget deficits, are emerging as serious concerns. In light of this complex and challenging environment, the new CAS adopts a more focused approach to the areas of engagement and a more flexible approach to the nature of the Bank's engagement in Sri Lanka. The design of the CAS has been informed by extensive consultations not only with the Government but also with a broad cross-section of Sri Lankan society across many parts of the country. The consultations and the experiences from implementing the previous CAS have shaped the Bank's thinking, both about what the Bank should be focusing on in terms of its assistance and how best to deliver that assistance. Show Less -

Sri Lanka is a densely populated island nation of 18 million people off the Southern tip of India. It is blessed with a diverse agricultural base and rich flora and... Show More + fauna. Since independence in 1948, the country has made impressive social gains despite its low per capita income. Its literacy and primary school enrollment are virtually universal, and the fertility rate is near replacement level. These accomplishments have been accompanied by an unbroken record of democracy. With its human resource base and natural endowments, Sri Lanka could have achieved the growth records of its East Asian neighbors had it not been for a history of ethnic conflict, political violence, and stop-go economic policies. The country has been on and off the economic reform path since 1977. Since credible adjustment efforts resumed in 1989 under President Premadasa, economic growth has been more robust. The private sector has become the main engine of growth, helped by substantially reduced regulatory barriers and privatization. Today, the public sector no longer dominates manufacturing. However, the state still accounts for a quarter of total employment (civilian and military). It also owns more than 70 percent of all land, and intervenes heavily in agricultural trade and pricing. The Bank Group's strategy is designed to help Sri Lanka realize its dream of economic growth and poverty reduction comparable to that of its East Asian neighbors. In view of the uncertainties about peace prospects and the political dynamics of economic reform, the IDA's strategy emphasizes flexibility combined with the maintenance of longer-term continuity. In the short-run, IDA will try to minimize policy slippage and exploit opportunities for immediate progress. The Bank will support the government's efforts to: 1) improve fiscal discipline; 2) promote sustainable private-sector led growth; and 3) address second generation human resource issues. IDA is pressing the government to complete the reform agenda and send steady and clear messages to the private sector. As a country poised for "take-off", Sri Lanka can also benefit from IDA's international experience and assistance in addressing the key requirements for private sector growth: 1) diversification and productivity growth in the agricultural sector; 2) deepening of the financial sector; 3) private sector investments in infrastructure; and 4) environmental safeguards. Show Less -