October 6, 2008 - 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.
Facts: - The Bank will systematically seek to build domestic constituencies for policy reform and facilitate the sharing of international best practices. - The Bank's experience from the last CAS shows that it has the ability to implement projects even under highly adverse conditions. - As the conflict looms large over Sri Lanka, it is critical that the Bank's engagement be highly conflict-sensitive. - The Bank will systematically seek opportunities to address the causes and consequences of the conflict.
In terms of peace, developments during 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. 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.
The armed conflict is an important stumbling block to long-term development and poverty alleviation in Sri Lanka. The conflict has deep historical roots, and involves multiple issues such as ethnicity and access to economic opportunities. Recently, the Government has gained control of the Eastern Province but battles still continue in the North. Despite the conflict, economic growth has averaged 4.9 percent annually since 1977. Growth was bolstered by broad-based liberalization initiated more than three decades ago, well ahead of other countries in the region. In the last couple of years, growth has averaged more than 7 percent per annum, but high inflation and a widening current account deficit are emerging areas of concern..
Sri Lanka's main development challenges, as emphasized in the Government's 10-year Development Framework, are to accelerate growth through increased investment in infrastructure, to achieve a more equitable development through assistance to the lagging regions, and to strengthen public service delivery to ensure quality and performance of services to meet modern development needs.
Chapter 3: LESSONS FROM THE LAST CAS AND PUBLIC CONSULTATIONS
The CAS public consultations revealed high expectations for a continued strong Bank engagement in Sri Lanka, despite an everchanging operational environment that requires constant adaptations and adjustments. The implementation of the last CAS showed the importance of ensuring Government ownership and continued political commitment for successful policy implementation.
The conflict has been an impediment to longterm development and poverty alleviation in Sri Lanka. Recognizing this, the CAS interventions will be highly conflict sensitive, subjecting all projects to a “conflict filter”. The Bank would also seek to further strengthen governance in flexible and pragmatic ways by supporting core governance institutions such as Auditor General's Office, and strengthening beneficiaries' voice in projects the Bank is supporting.
Chapter 5: PARAMETERS AND INSTRUMENTS FOR THE BANK GROUP'S ENGAGEMENT
The proposed lending program has a strong emphasis on community-focused projects and projects delivered through local and provincial governments to provide public services, infrastructure and livelihoods. The program is vulnerable to deterioration in the country situation and requires careful monitoring, implementation and adaptation. The IFC will continue to provide longerterm financing than is usually available in the Sri Lankan financial markets for private enterprises, and provide business advisory services through its South Asia Enterprise Development Facility.
The over-riding risk to the effectiveness of the Bank's work is the negative impact of a further escalation in the armed conflict. This will not only adversely affect the Bank's operations but also increase the stress on the macro-economic situation. Project beneficiary selection will be based on sound analysis and technical criteria to minimize the risk to the Bank of being perceived to be disproportionally favoring one ethnic group over another. Early project-specific risk assessments and enhanced use of third-party monitoring of project activities, will also strengthen Bank's attention to fiduciary risks in project design and project supervision.
Development Data A wide range of social and economic measures on Sri Lanka, including links to the World Bank's most important online development databases.
Analysis and Research Compilation of all the World Bank's publications on Sri Lanka, with 'search' options and links to analysis and research on other South Asian countries.
World Bank Program in South Asia Launching pad to all information on World Bank activities in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
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