Build strong institutions and practical governance

World Bank Country Director for Sri Lanka and the Maldives Diarietou Gaye

Sri Lanka needs to focus on building strong institutions and a practical governance structure that benefits the entire population to become an effective Middle Income Country. This should be coupled with increased investments in infrastructure and human capital said, World Bank Country Director for Sri Lanka and the Maldives Diarietou Gaye. She was addressing the 172 AGM of the Ceylon Chamber of Commerce. This is a great time for private initiatives to emerge and prosper in Sri Lanka.

Many opportunities are, there and are just waiting to be seized, but for that to happen, we need to all work together to move Sri Lanka out of poverty and project the image of the Sri Lanka we all love: a great place to visit, live, learn and most of all invest, Gaye said.

The chamber is in a good position to drive this engine of growth. “You have done a good job over the years and now it’s time you jump from good to great in positioning the private sector as a key partner in emerging Sri Lanka”.

She said that the conflict held back much of the country’s growth and development prospects following liberalisation. The country’s economic fundamentals have also improved considerably:

(a) inflation and interest rates having come down to single digit levels.

(b) the rupee having stabilised and appreciating in recent times backed by strong BoP flows and strong external reserve position and

(c) the fiscal deficit also narrowed considerably from nearly 10 percent in 2009 to around 7 percent in 2011. The IMF program the country entered to in July 2009, a few months after the end of the conflict, have progressed well with the country marking the completion of the sixth review in April 2011, the furthest it has progressed under any IMF program in history.

Gaye said that with all these feel good factors in the backdrop, considerable challenges remain for the country as well as for the private sector to move forward: First and foremost is the issue of lasting peace: Although the country has won the war on terrorism its main challenge is to win the confidence of all communities.

National reconciliation and nation building need to be a collective effort, one that the government alone cannot achieve. Active support and partnership of the private sector, civil society and the international community is very much needed to ensure that the country sustains its hard won peace. She commended all the good work done by the Chamber to link the people of the North and East with people from the South. Business can facilitate the reconciliation process by connecting people to people and link them to prosperity.

It is important to remember that achieving 8-9 percent growth over the medium term as envisaged under the Mahinda Chinthana needs to be primarily driven by the private sector. To sustain these levels of growth the country needs to increase investment rates to around 35 percent of the GDP (from current 28 percent). The private contribution of this investment requirement should therefore need to rise to around 30 percent of GDP from current 22 percent. This is a huge jump and it involves ramping up both the private domestic investment and Foreign Direct Investment (FDI), she said.

The government’s efforts towards improving the doing business indicators poses an opportunity to engage in constructive dialogue. She spoke of Rwanda, a country, that a few years ago, was known only for genocide and war that killed over one million. The economy contracted by 40 percent in 1994 when the conflict ended. A Government of National Unity was Formed in 1995 and Paul Kagame was appointed president in March 2000. Today, Rwanda is one of the fastest growing countries in Africa and has doubled FDI over the last 3 years. GDP growth averaged 6.5 percent since 2002 with inflation kept under 5 percent.

They position in the Doing business moved from 143 in 2008 to 58 in 2010 and Rwanda still progressing.

More importantly, the image of this country has changed from dreadful genocide to unprecedented economic reforms Gaye said.

The successes in Rwanda and Georgia have largely been the result of an open dialogue between government, private sector and other stakeholders where difficult questions are openly debated. She said that the World Bank is in a privileged place to be able to share knowledge, expertise and experience, connect people and institutions throughout the world.