Sri Lanka faces a historic opportunity to evolve from a lower-income country mired in conflict, to a middle-income country in lasting peace. Until now, Sri Lanka’s growth had been constrained by three decades of conflict despite the country’s highly-educated population. The ending of the armed conflict with the separatist Liberation Tigers of Tamil Eelam (LTTE) in 2009 provides an opportunity for the country to embark on reforms and work with the private sector to establish a more dynamic and vibrant economy. Sri Lanka’s development has reached a critical juncture. Thanks to relatively rapid economic growth that pushed per capita income over the US$1,000 mark in 2004, and traditionally high levels of human development, Sri Lanka is on the verge of becoming a fully-fledged middle-income country. Development challenges Since embracing an open market economy in the late 1970s, the country has witnessed robust economic growth despite several adverse shocks, including a tsunami, oil and food price increases, and increased competition for its apparel exports following the end of the Multi-Fiber Arrangement (MFA). Growth averaged around 5 percent in the 1980s and 1990s, and has been above 6.5 percent since the 2004 Tsunami. At the same time, however, Sri Lanka’s growth has been highly uneven with most of it concentrated in the Western Province. In the rest of the country, GDP growth has remained at around half of that of the Western Province, while poverty rates have also remained relatively high. With the end of conflict, vast areas in the North and East of the country, neglected for nearly a quarter-century, stand to receive a considerable positive stimulus. Peace is widely expected to inject new life into the tourism sector, which until now could not reap its full potential. The country also stands to attract more Foreign Direct Investment especially in the burgeoning business process outsourcing sector (BPO) which holds considerable promise. Sri Lanka is on track to achieve most Millennium Development Goals by 2015, but will need to focus on achieving quality, relevance and sustainability in key public services. The World Bank in Sri Lanka For over five and a half decades the World Bank has provided both financing and technical assistance to support Sri Lanka’s economic development. Bank assistance has helped in developing the island’s energy, transport, and telecommunications infrastructure, expanded health, education, water and sanitation services, enhanced agricultural productivity, and financed nascent private enterprise. In the wake of the tsunami, IDA was able to modify its 2003 Country Assistance Strategy to address urgent needs. The main strategic objectives of the World Bank Group’s current Country Assistance Strategy for Sri Lanka, covering the period from July 2008 to June 2012, are threefold. The first is to create opportunities for equitable growth and economic development, especially in lagging regions of the country. The second is to help Sri Lanka accelerate economic growth by improving competitiveness, and the investment climate and the third is to help the country ensure that service delivery is effective and accountable to citizens. The CAS supports the government’s 10-year Development Framework, with an annual lending envelope of around US$ 200 million. This CAS, formulated amidst the intensification of the armed conflict, marked a departure from past practices in its recognition of aid’s potential to address not only consequences of the conflict but also its causes, wherever opportunities arise. The strategy seeks to avoid inadvertently fueling the conflict on the ground, and commits the Bank to allocate sufficient resources from the IDA resource envelope to the conflict-affected areas and populations. A significant feature of the current CAS is the instrument called the “Conflict Filter” against which lending operations are reviewed. All projects are now routinely reviewed to ensure that: (1) sufficiently broad stakeholder consultations have been held;
(2) an adequate grievance mechanism has been established;
(3) beneficiary selection process have not been distorted;
(4) conflict generated needs are being adequately identified; and
(5) opportunities to strengthen reconciliation and inter-ethnic trust have been identified. |
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