Lanka, Asia's economic success story - ADB President

by Shirajiv Sirimane

Sri Lanka is slowly but surely heading towards being a 'Wonder of Asia' as spelt out in the Mahinda Chintana.

This was endorsed by the President of the Asian Development Bank(ADB), Takehiko Nakao who after a three- day visit to the country. He said Sri Lanka can become another Asian economic success story.

Nakao said his belief is that Sri Lanka can and should become another Asian economic success story and in this sense the next Asian miracle.

Delivering the eminent speaker's address at the Miloda - Academy of Financial Studies, training Institute of the Finance and Planning Ministry, on "Chance of Sri Lanka to be the Next Asian Miracle", the ADB President said Sri Lanka can and should become another Asian economic success story. Pointing out that since the end of terrorism in May 2009, Sri Lanka has been recording solid rates of growth and is on course to surpassing last year's rate of 7.3% in 2014, the ADB Chief said the expansion of the economic activity in the conflict-affected Northern and Eastern Provinces almost twice as fast as in the rest of the country is striking. "What is especially striking is that economic activity in post-conflict Northern and Eastern Provinces expanded almost twice as fast as in the rest of the country. This is a remarkable sign of reconstruction and rehabilitation - a means to securing jobs and income, and to delivering reconciliation in the conflict-affected regions," Nakao said.

Despite three decades of terrorism, Sri Lanka has become one of the most successful countries in Asia in terms of social development indicators - especially health and education, the President of the Asian Development Bank (ADB), Takehiko Nakao said.

He said the government's goal of reaching $ 4,000 per capita income by 2016 and making the transition from a lower middle income country to an upper middle income country is realistic and Sri Lanka has the potential to be the first country in South Asia to break through the middle income trap and achieve high income status.

Nakao also met with Sri Lanka's President Mahinda Rajapaksa, as well as several ministers and senior officials, to discuss global, regional and bilateral issues, including challenges and opportunities for the Sri Lankan economy over the short to medium term.

At the meeting with President Rajapaksa, Nakao commended the country's strong economic growth, as well as its ongoing efforts to lift the country into upper middle income status.

"This is my first visit to Sri Lanka-a country with a rich cultural heritage and abundant natural resources, a country in the middle of an exciting, historic transformation".

ADB forecasts that the Sri Lankan economy will expand 7.5% both this year and next, one of the fastest growth rates in the region. That would follow a 7.3% expansion registered in 2013. Nakao mentioned "what is especially striking is that economic activity in the post-conflict Northern and Easter Provinces expanded almost twice as fast as in the rest of the country. This is a remarkable sign of reconstruction, rehabilitation and reconciliation."

Going forward sustain growth, President Nakao stressed the importance of maintaining 1) sound macroeconomic policy including the reform of state owned enterprises; 2) strong investment in physical infrastructure by promoting public private partnership to mobilize private sector resources as well as implementing investment by the Government itself backed by its own resources and supported by international partners including ADB; 3) investing in skills development through technical and vocational training; 4) improving investment climate and facilitating private sector development; 5) pursuing inclusive growth by prioritizing regions and sectors currently lagging behind; and 6) having clear strategy for development and sharing it with the people.

President Nakao indicated that the ADB will place greater emphasis on human resource development such as education and skills training, while maintaining focus on infrastructure and private sector development.

Sri Lanka joined ADB as a founding member in 1966. As the end of 2013, ADB had approved 176 in government and non-government loans totaling $6.17 billion for Sri Lanka.

Clearly, Sri Lanka has the basis for a strong economy. Its achievements go back a long way. For instance, ancient Sri Lanka had one of the most advanced irrigation systems in the world. Indeed, the construction of its first large water reservoirs dates back to the 3rd century BC. Thereafter, Sri Lankan engineers developed highly efficient canal systems that delivered water to farms, unleashing highly productive agriculture. It is quite extraordinary that close to 30,000 water reservoirs built way back in the 12th century during the period of King Parakrama Bahu I are still in operation today. Performance is equally impressive when it comes to key macroeconomic indicators. Since the end of civil war in May 2009, Sri Lanka has been recording solid rates of growth. During 2010 and 2011, economic growth exceeded 8%. While growth slowed to 6.3% in 2012 reflecting negative growth in the eurozone, it recovered quickly to 7.3% last year, and is on course to surpassing this rate in 2014.

What is especially striking is that economic activity in post-conflict Northern and Eastern Provinces expanded almost twice as fast as in the rest of the country. This is a remarkable sign of reconstruction and rehabilitation - a means to securing jobs and income, and to delivering reconciliation in the conflict-affected regions.

Macroeconomic management has been sound. High economic growth has been achieved while inflation has remained in single digits. The fiscal deficit declined from 9.9% of GDP in 2009 to 5.9% in 2013. The external balance has also stabilized since 2011-with the current account deficit narrowing. Gross international reserves have been rising to comfortable levels.

Another important thing to highlight is that the country has been able to sustain public capital investment levels of about 6% of GDP. Such high level public investment is crucial to ensure robust and sustainable economic growth over the years. These investments are being directed at transport and maritime logistics, water and sanitation, and energy security. Furthermore, the Government has maintained focus on education, health and social protection.

Despite these successes, one major macroeconomic challenge is a low revenue ratio. This stood at 13% in 2013. For the Government to continue to play a key role in infrastructure development and human capital improvement, Sri Lanka will need to increase this ratio. In this regard, I am happy to see that a major tax reform program has been under way since 2011. The aims of the reform include broadening the VAT base and improving administration.

"With the per capita income at $3,280 in 2013, I believe the Government's target of reaching $4,000 by 2016 is realistic. This means that Sri Lanka will make the transition from a lower middle income country to an upper middle income country. The next target will be to reach high income status. This would make Sri Lanka the first country in South Asia to break through the middle income trap." "I certainly believe that Sri Lanka has the potential to do so. As I mentioned earlier, the country is rich in natural resources. It also has a rich cultural heritage, an important success factor for tourism development. Sri Lanka is also blessed by its unique strategic location, linking East Asia with Europe and Africa, and South Asia with East Asia."

"Above all, it has a high quality labor force backed by good education and health systems. These factors combined pave the way for success in high-end garment manufacturing, agribusiness, the tourist industry, port and transshipment logistics, and export-oriented IT and professional services."

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members - 48 from the region. In 2013, ADB assistance totaled $21.0 billion, including cofinancing of $6.6 billion.

He visited the Colombo Port Expansion Project (CPEP) to which ADB has granted a soft loan of USD 300 million for the harbour infrastructure works of the Colombo Port Expansion Project (SLPA) and closely worked with SLPA in successful completion of the Project in time. SLPA has spent USD 100 million in addition to the ADB loan in this regard. ADB President appreciated the development works of SLPA and specially commended on the success of the Colombo Port Expansion Project.

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[Social development indicators]

Sri Lanka is one of the most successful countries in Asia in terms of social development indicators - especially health and education. Some key indicators that Sri Lanka can be proud of are:

*Transition rate from primary to secondary education is now 98%, one of the highest in Asia

*Adult literacy stands at 92%, compared with an average of 71% in lower middle income countries in the world

*Infant mortality has dropped steadily from 70 per 1,000 live births in 1960, to 8 per 1,000 today

*Access to safe water supplies stands at as high as 99% of the urban population."

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