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Sri Lanka: Rising Up the Ranks While Sharing Prosperity

April 9, 2013

Dams have been rehabilitated to prevent floods throughout Sri Lanka.

Sri Lanka is rising in the middle-income country ranks. Even during the three decades of conflict, the country maintained at least 5% of growth throughout. Unemployment rate (7% in 2005 to 4% in 2011, excluding North and East Provinces) and poverty rate (15% in 2006/07 to 9% in 2009/10) have dropped dramatically while pockets of disparities still remain in some parts of Sri Lanka.
95%

Primary school completion for boys and girls

Challenge

Sri Lanka is a lower Middle Income Country with a steady growth. As with all prolonged conflicts, social inclusion has been slow to be established. A long-lasting solution to the ethnic problem and putting in place effective means of addressing grievances of minority communities is vital for sustained peace. 

By 2036, more than 22% of Sri Lanka’s population will be over 60 and there will be 61 dependents per 100 adults. Unless labor force and employment rates increase, a very small number of employed persons will need to provide for a very large number of non-working people – straining the budgets of families and the government. With a higher income ageing population, public services need to change. The education system needs to increase emphasis on computer, English, and higher-level cognitive skills. The health system needs to deal with the growing burden of non-communicable diseases and provide rehabilitation and long-term care, especially for the elderly. Sri Lanka is making slower progress on the Millenium Development Goals related to malnutrition and child mortality. Indicators are mixed on the environment goal: While Sri Lanka is an early achiever on indicators of protected area, ozone-depleting substance consumption, safe drinking water, and basic sanitation; it has stagnated or is slipping backward on forest cover and CO2 emissions.

Approach

The government strategic vision is laid out in the Mahinda Chintana document of 2010. The strategy describes three clear goals: doubling per capita income through sustained high investment; shifting the structure of the economy; and ensuring inclusive growth, improvement in living standards, and social inclusion. The World Bank Country Partnership Strategy is focused on strengthening Sri Lanka’s position as a middle-income country.

The World Bank will support the government’s efforts to address the challenges and constraints for achieving its vision, specifically by: facilitating sustained private and public investment through improving the investment climate and increasing fiscal space and public spending efficiency;  supporting structural shifts in the economy through assistance for a knowledge-based economy, and increased internal Sand international integration and competitiveness; and promoting improved living standards and social inclusion through support for increasing quality of services, reducing the prevalence of malnutrition and promoting social inclusion and equitable access.

Open Quotes

My husband died while fishing at sea. Since then, I've been a single mother providing for my daughter. When I returned home in 2009, my business was damaged from the war. With the Rs. 30,000 loan I received, I've been able to reopen my business and have an income once again. Close Quotes

Jayaleela Sivakulendran
Reawakenings Project Beneficiary

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With increased access to micro loans at affordable rates, small farmers no longer need to borrow money from local money lenders to overcome challenges of unexpected weather-related disasters and other obstacles.

Results

Sri Lanka, which graduated to IBRD status in 2010 is still eligible for IDA funding and has a portfolio of IDA projects supporting education, health, transport, ICT, rural and urban development sectors.

Great strides are made in increasing school enrollment and literacy rates. In 2005 net primary enrollment rate was 96% among both boys and girls, and the net primary completion rate was 95% for both genders. School survival rates through grade 9 increased from 78% in 2005 to 91% in 2011, and the proportion of primary school students attaining competence in mathematics increased from 67% to 82% during the same period. Multi-ethnic teacher training programs were conducted by 78 Teacher Centers, and co-curricular activities among children of different ethnic communities were also conducted by 629 schools. About 2,800 school facilities and 880 toilets were constructed, and 1,220 classroom blocks were built. Approximately 110,500 teachers, 113,800 in-service advisors and 140 education officials were trained. Cognitive achievement scores in first language (Sinhala and Tamil) grade 4 increased from 60% in 2003 to 82% in 2009. Cognitive achievement scores in mathematics in grade 4 rose from 67% in 2003 to 82% in 2009. Cognitive achievement scores in English in grade 4 rose from 32% in 2003 to 58% in 2009. The increase in participation and improvement in learning outcomes was observed in all nine provinces of the country.

The Bank has been supporting the improvement of quality education and employability of graduates at tertiary education since 2003 with IDA support. IT achievement scores of undergraduates rose from 49% in 2005 to 56% in 2008 and English score from 59% to 69% during the same period. The Higher Education for Twenty-First Century Project has made progress in the development of a national qualifications framework, and legislation has been approved to enable registration, quality assurance, and accreditation of state and non-state higher education institutions in line with the Higher Education Development Strategy of the government.

The Bank‘s e-Sri Lanka Development Project has established more than 650 tele-centers throughout the country, linking over 72,000 users monthly, half of whom are women. The project has trained over 35,000 private-sector participants who have now incorporated ICT into their businesses by the end of 2012. The other major focus of the project has been to improve government efficiency and transparency by introducing ICT in government agencies. Apart from this several key laws have been adopted, creating a much-needed ICT legal framework. This has resulted in reducing transaction costs and regulatory burden for businesses and citizens.

The quality of the national road network has improved with a reduction in the International Roughness Index (from 9.5 in 2005 to 6.2 in 2012) and a decline in the network vehicle operating costs (from 24 Rs/km in 2005 to 14 Rs/km in 2012). Bank support through the Road Sector Assistance Project upgraded 618 km of national roads and the roughness index is far below the national average. Support to rural roads has contributed 154 km of repaired roads, with a 60% reduction in travel time in 2012 when compared to 2005.

Bank Group Contribution

The Sri Lanka portfolio is healthy with no problem projects or projects at risk, and 100% proactivity. Following the recent approval of the Second Health Sector Development Project, the portfolio is comprised of 16 projects with a total net commitment of $1.49 billion. In addition, the Bank supervises a portfolio of $21 million spread across six recipient executed trust funds covering agricultural financing, nutrition, people with disabilities, water and sanitation. The current portfolio consists primarily of IDA-funded projects, with IBRD having been used to date for one project - the Metro Colombo Urban Development Project. As of FY15, Sri Lanka will be an IBRD-only country.

The International Finance Corporation (IFC’s) country strategy for Sri Lanka for FY13-15 focuses on (i) Inclusive growth by increasing access to services for the underserved; and (ii) Global integration by enhancing growth and competitiveness of priority sectors. Priority areas under this strategy include access to finance, infrastructure, tourism, and agribusiness, with a focus on lagging regions and communities. IFC expects to commit $200mn in 2013.

IFC also provides advisory services to promote sustainable growth among small and medium enterprises by facilitating access to finance, and by offering capacity-building and training opportunities. SME related work accounts for approximately 73% of IFC’s active advisory portfolio in Sri Lanka.

In addition, IFC is developing the implementation plan for a project in 4 districts in the North and East provinces. The project is aimed at supporting the transition from recovery to development in these districts and bridging the gap with the more developed areas of the country.

Partners

The foreign aid profile in Sri Lanka has changed considerably in recent years. With Sri Lanka graduating to the middle income level, the government of Sri Lanka has broadened its options for foreign financing for public investment, in a mix of less to non-concessional financing together with the available concessional financing. 

The 2005 to 2010 period saw a marked increase of total foreign financing commitments, from US$1,311 billion in 2006 to $3.261 billion in 2010, representing about a 150% increase. The total Foreign Finance Commitments declined in 2011compared to previous years, as the financing of some key lead projects was secured the previous years.  It nevertheless reached $2.076 billion.  

Commitments from China, Japan, ADB and the World Bank accounted for $1.757 billion, amounting to 84% of the total commitment in 2011. Sri Lanka also secured US$131 million of grants, a 6 % increase over the previous year, and provided largely (approximately 70%) by UN Agencies. In 2011, total foreign aid disbursement reached $1.901 billion.

While the largest traditional donors/lenders have historically been the ADB, World Bank and Japan, China has now emerged as the largest lender, with involvement primarily in the road sector.  Concessional assistance from western bilateral partners in general has diminished whilst financing in the form of export credits has increased.

Moving Forward

The World Bank Group will support government efforts to improve the investment climate, strengthen governance and reduce the inefficiencies of the public sector. The World Bank Group will deepen its assistance to the knowledge-based economy with investments in skills, research and innovation. In addition, support for the development of infrastructure projects needed for sustainable urban development and better linkages within Sri Lanka will be enhanced. The Bank Group also stands ready to support government efforts to promote environmental sustainability and climate change adaptation. The World Bank Group will continue to support improvements in living standards and social inclusion in order to ensure that the benefits of rapid growth and higher quality services are broadly shared. 

Sri Lanka is an IDA-IBRD blend country as of FY12. An indicative lending program for IDA and IBRD combined for the first two years of the CPS is $300 million in FY13 and $727 million in FY14. Sri Lanka’s eligibility for IDA will likely end with the IDA 16 cycle. The government is interested in IBRD lending of up to $500 million annually during FY15 and FY16, which would, however, depend on the macroeconomic environment in Sri Lanka, overall demand for IBRD resources from other clients, IBRD financial capacity and global economic developments.

Beneficiaries

42-year-old Sivakulendran, Jayaleela’s husband died in 1994 while he was fishing out at sea. Ever since, she has been raising and providing for their daughter single-handedly. In September 2009, Jayaleela and her daughter returned home to find their retail shop partially damaged in the war. With the Rs.30,000 loan she received from the Reawakening Project, Jayaleela has reopened her  business. Already 615 individuals in Vadmarachchi East DS Division have obtained loans to establish viable income generating activities.

Ramachandran Umaranjani is among a group of 42 individuals from Chempiyanpattu South that is currently undergoing skills and capacity building training aimed at enhancing their income earning abilities. After receiving initial training, Umaranjani and a few other women from her village are now making various crafts using locally available palmyrah leaves.

A significant part of the World Bank’s assistance has also channeled toward building vital community and institutional infrastructures. This has enhanced the ability of service providers to respond to increasing service related demands of the resettled communities.

The World Bank’s financial assistance has empowered thousands of returnee families not only to establish themselves in their homes and villages in war-affected Northern districts, but more importantly, to lead independent, productive and dignified lives, once again.