Global economic uncertainty:

Greater volatility in capital flows envisaged - ADB country director

by Gamini WARUSHAMANA

The main challenge faced by the Asian region is maintaining inclusive growth in the years ahead. The most immediate is responding to swelling inflation pressures, which can be complicated by subsequent capital inflows. We note that capital has so far been flowing into the region at a manageable pace, but global economic uncertainty means policy-makers need to be prepared for greater volatility in capital flows, said Country Director of the ADB in Sri Lanka Rita O` Sullivan in an exclusive interview with Sunday Observer.

Rita O' Sullivan

Q. What are the areas that ADB is willing to assist Sri Lanka under the new Country Assistance Plan (CAP)?

Answer: The recently approved ADB’s Country Partnership Strategy (CPS) for Sri Lanka covers from 2012 to 2016.

The goals and objectives of the government’s Development Policy Framework (DPF) - the Mahinda Chintana and ADB’s Strategy 2020 are very similar, and the CPS builds on their priorities.

The strategy, also developed in consultation with key development partners, complements their programs and aims to assist the government to address the major constraints for sustaining inclusive growth.

The CPS focuses on three pillars: (i) inclusive and sustainable economic growth, (ii) catalysing private investment and enhancing the effectiveness of public investment, and (iii) human resource and knowledge development.

ADB’s future interventions will be strategically focused in five sectors - transport; energy; water supply and other municipal infrastructure and services; education; and public sector management.

The strategy’s crosscutting themes are also in line with the government’s priorities and include the environment and climate change adaptation, gender, governance, and regional cooperation.

Recognising the magnitude of the needs in lagging regions, ADB will remain flexible to support critical interventions in these regions depending on the emerging needs.

ADB’s operations will leverage its resources to attract private capital and will work with development partners to improve coordination of the overall assistance package. A critical role has been assigned to the private sector, and skills development has been assigned high priority.

Q. What is your assessment of the newly opened Southern Expressway, its economic benefits, mitigation of negative socio and environmental impacts?

Answer: The Southern Expressway is Sri Lanka’s first expressway with a length of 102km connecting Colombo to Galle. There are significant economic benefits generating from this expressway, as evidenced by the initial tourist business increase in Galle. The journey from Colombo to Galle, which previously took over three hours, now takes just over one hour. The expressway is contributing to saving in travel time, reduced vehicle usage costs and opening of new markets, which contribute to economic development.

For example, agriculture-related incomes in the areas connected to the expressway are expected to prosper, because faster transportation and better access to markets reduce crop wastage.

As long distance vehicles shift to the new expressway, the existing Galle Road will become less congested, and encourage development of local industries. The potential for tourism and industrial development of the Southern Region will significantly expand. Faster travel times, smooth traffic flow will also cause improved fuel efficiency of the vehicles which in turn will result in lower emission of CO2 and pollution.

Land prices around the expressway interchanges are increasing with some estimates showing up to 90 percent growth in land valuation. Socially, the expressway is supporting families with some workers now travelling to work daily from their homes in the South.

This was not possible before the expressway when many workers had to opt to rent houses in the suburbs of Colombo and live away from their families. We are seeing a happy result for the families in the South to travel to Colombo daily for personal and official work.

This advantage will be extended when the public transport service commences operation in three months time.

New industries will also develop around the eight interchanges at Kahathuduwa, Bandaragama, Dodangoda, Welipenna, Elpitiya, Baddegama, Akmeemana, and Weligama.

For the purpose of land use planning, satellite towns are also identified and access roads will be rehabilitated to provide better linkages from satellite towns to the interchanges.

We note there were land acquisition and resettlement issues that arose during the building of the expressway.

However, the impact of the necessary land acquisition is now mitigated with the government’s initiative to build 37 resettlement sites with facilities to impacted communities and paying replacement value for land for resettled families. ADB provided experts in resettlement to assist with this work.

From an environmental perspective, there is an underpass or an overpass available every 500 metres (m), so that pedestrians need only walk for a distance of 250m to access them.

There are pedestrian walkways built as part of every river bridge. The expressway has a strong cross drainage structure, with 100-year flood return period for bridges and 50-year-flood return period for culverts.

Q. Are you ready to invest in proposed mega projects such as highways, ports and airports?

Answer: We have a firm project program for 2012 focusing on transport, energy, education and water supply sectors, with an annual public sector investment envelope of about of $300 m.

There are three loans proposed in the transport sector: The Northern Road Connectivity Project additional financing for about $92 million, National Highways Sector Project additional financing for about $40 million and Second Road Project Preparatory Facility for about $6 million.

The energy sector project entitled Clean Energy and Network Efficiency Improvement Project for about a $100 million loan will contribute to a reliable, adequate, and affordable power supply for sustainable economic growth in Sri Lanka.

The objective of the project is to increase clean power supply and to improve efficiency and reliability in the delivery of electricity in Sri Lanka.

Technical Education and Vocational Training Sector Development Project with a Multi Finance Facility of $200 million and the first tranche of $40 million is planned to be released in 2012. Under this project, the performance of the technical and vocational sector will be improved significantly while also strengthening private sector involvement in skills development.

The Water Supply Service Improvement Project worth $42 million aims to deliver better urban water supply services in an effective and efficient manner by reducing Non-Revenue Water (NRW) mainly in Colombo. The project will involve both physical network rehabilitation, and institutional and management enhancement to reduce NRW.

On the private sector side, we are working with various parties to develop possible projects in a number of sectors in which ADB will take a stake and support private sector development, but these are still on the drawing board.

Q. What is your view on 3% rupee devaluation recently in the 2012 budget?

Answer: Businesses, mainly exporters have been optimistic about the government’s decision to devalue the Sri Lankan rupee by 3% as it is expected to provide some support to exporters, whose competitiveness has been eroded by the currency’s strength and high local rates of inflation.

Sri Lanka’s rupee devaluation appears to be a step in the right direction as it helps restrain imported inflation. We expect foreign reserves to be maintained by continued inflows of foreign lending and investment.

Q. Are you satisfied with the speed of recovery and development in the North and East? What are the areas that ADB is involved in?

Answer: After May 2009, ADB approved several projects with a special focus on reconstruction and development of the North and East. The North-East Community Restoration and Development Project II, Conflict-Affected Region Emergency Project, Northern Road Connectivity Project, Secondary Towns and Rural Community-Based Water Supply and Sanitation Project, Jaffna Water Supply and Sanitation Project are among many such projects.

The objectives of these projects are to significantly expand and strengthen the reconstruction of urgently needed essential infrastructure and administrative services to assist in meeting basic human needs and create livelihood and sustainable employment opportunities in the conflict affected areas by supporting the recovery of the region’s economy. Clearly a lot of work is needed in Sri Lanka’s lagging regions and the ADB is partnering with the government and other development partners to improve the situation.