Achieving national reconciliation - key objective:

WB urges greater macro-economic stability

The World Bank (WB) has called for greater macro-economic stability, creation of more jobs, improving Sri Lanka's global competitiveness, investing in under-served people and areas, and promoting green growth as a part of its four-year strategy for Sri Lanka.

The World Bank Group's Country Partnership Framework (CPF) for Sri Lanka for the period ending June 2020 that 'achieving national reconciliation remains a key objective in Sri Lanka, notably in framing the new constitution'.

As part of its economic outlook, the report finds that fiscal risks emanating from state-owned entities (SOEs) were substantial. Debt by SOE sunder a treasury guarantee increased from 1.4 percent to 5.8 percent of GDP between 2006 and 2015. "While this includes debt by SOEs with their own sources of revenue, increasingly, guarantees have been given to entities with limited sources of revenue, such as the Road Development Authority (RDA). Many of these entities also have borrowed without a guarantee." The outlook cites that growth expected to reach 5.3 percent in 2016 and remain at that level until 2020, driven mainly by capital expenditure and non-tradable sectors.

"As long as the global economy continues to be challenging, the tradable sectors are not projected to grow fast in the near term..."

Going forward the challenge was to restore fiscal sustainability. In an environment of rising domestic interest rates, tightening global financial conditions, and a less welcome climate for emerging markets, more decisive and sustained fiscal adjustments are warranted in the coming years to increase fiscal space for development spending, reduce the fiscal deficit and stabilize the public debt.

Despite progress on poverty, living standards remain low

On the poverty profile, the framework analysis finds that strong economic growth in the last decade has led to a decline in poverty. However, living standards remain low for most Sri Lankans while pockets of severe poverty persist in the Northern, Eastern, and Uva provinces.

A large portion of the population remains close to the poverty line, as 36 percent of the population lives on less than $4.00 per day (in 2011 PPP terms).Pockets of high poverty continue to persist-specifically, in the districts of Mullaitivu, Mannar (both in Northern Province), Batticaloa (Eastern Province),and Moneragala (Uva Province)-where headcount poverty rates (based on the national poverty line) are close to or even exceed 20 percent.

Key Challenges

Inequality in consumption and income has increased since 2009 the report states. Between 2002 and 2009, inequality in both consumption and income declined, as pro-poor growth led to sizable increases in consumption for the bottom 40 percent of the consumption distribution.

The SCD found that despite a number of advantages, sustaining inclusive growth to end extreme poverty and boost shared prosperity in Sri Lanka faces several challenges.

The country it notes has great potential, with its enviable location in a fast-growing region along a major trade route, opening opportunities to serve as a regional trading hub; relatively strong infrastructure and human capital; and unique natural assets, giving it a strong basis for tourism and other nature-base activities.

However, Sri Lanka will need to address several constraints to achieving further progress, such as the challenge of fiscal sustainability; the challenge of promoting more and better jobs for the bottom 40% an emerging MIC; the challenges of providing for social inclusion for disadvantaged segments of the population; and longer-term sustainability challenges to preserve the environment, ensure political stability, and support an aging population. Governance is a cross-cutting challenge in all of these areas, according to he WB.