Sri Lanka : Development Policy Review
2004
World Bank
This report provides an integrated view of Sri Lanka's long term development challenges for sustainable growth and poverty reduction. Sri Lanka's substantial achievements in human development are well known. In several dimensions - such as universal primary enrollment, gender equality, infant and maternal mortality - the country is well positioned to meet the Millennium Development Goals (MDGs). In addition, housing conditions have substantially improved, relative to the early 1980s, in particular with respect to housing materials and access to electricity, safe water and sanitation facilities. However, despite improved overall access to basic services, large disparities remain in the access to, and quality of most of these services. Of particular concern is the fact that poverty reduction has been slow, while income inequality has risen in recent years. The disappointing trend in national poverty incidence also reflects a long-term growth performance significantly below the country's potential. The core theme of this report is thus the following: Sri Lanka must achieve a higher growth rate, but do so in a manner that poor people, and the poor regions of the country can more fully participate in this growth. The report further analyzes early reforms and their impact, as well as that of private sector participation. However, despite the increased role of the private sector, little progress was made in fundamentally redefining the role of the state, partly owing to Sri Lanka's strong attachment to a large public sector. An important message of this report is that much of Sri Lanka's skewed growth record and ensuing increased income inequality, spanning through alternate governments, is a reflection of the unfinished reform agenda. Recommendations suggest improved public financial management, including public debt reduction, and the rationalization of public spending, linking it to the poverty reduction strategy. In addition, the performance of state-owned enterprises should be improved, followed by fiscal consolidation and adequate tax policies. Policies for export growth should be accelerated, pursuing a competitive real exchange rate, and avoiding trade policy reversals, but it is also important to note that preferential trade liberalization, i.e., access to markets cannot substitute for needed improvements in labor productivity, lead time, and cost effectiveness. The report also focuses on the importance of the impacts from agricultural development, infrastructure development, and certainly the impacts of improved education and health.
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