Regions and Countries

	Table of Contents
p. 34 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia People’s Republic of China Southeast Asia South Asia Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka The Pacific

Sri Lanka

Economic performance

Economic growth: After achieving growth momentum during the second half of 1999, Sri Lanka recorded an annual growth rate of 6.0 percent in 2000, compared with 4.3 percent in 1999. Growth in agriculture slowed. The services sector showed steady growth and the industry sector outperformed other sectors. The rapid growth of the industry sector was attributed to a favorable external trade environment that began during the second half of 1999. In the agriculture sector, foreign exchange earnings from tea and coconut increased; but paddy output declined because of unfavorable weather. In the industry sector, production of textiles and garments, and rubber and plastic products expanded because of increased world demand. The steady growth of the services sector reflected the continued fast growth in telecommunications, following large investments in past years. Total tourist arrivals declined slightly, reflecting security concerns.

Employment: The unemployment rate dropped from 8.9 percent in 1999 to 8 percent in 2000, indicating economic recovery. While graduates had difficulty finding jobs, rural poor youth filled vacancies in security establishments. The number of foreign migrant workers also increased.

Inflation: Consumer price inflation was 6.2 percent in 2000, up from 4.7 percent in 1999. Key factors for the higher inflation rate were high food prices because of less favorable weather in 2000 and high oil prices.

Fiscal balance: Defense expenditure increased to 5.6 percent of GDP in 2000 from 4.4 percent in 1999. To counterbalance this, the Government raised the national security levy and excise taxes on alcohol and tobacco, and reduced nonessential capital expenditure by about 10 percent. Despite many fiscal consolidation efforts, the budget deficit increased to 9.8 percent of GDP from 7.5 percent in 1999.

External sector: Exports grew by 17.8 percent in 2000, maintaining the momentum achieved in late 1999, while imports soared by 22.9 percent. The high export growth rate resulted from strong economic growth in Europe and the US, and recovery in Asia. The main contributors to export growth were textiles and garments, which increased by 20.5 percent. Imports of investment goods such as transport equipment and machinery showed a slower growth rate of 13.4 percent. However, imports of intermediate goods such as crude oil and textiles increased by 22.9 percent, reflecting Sri Lanka’s export-led import structure and high oil prices. As a consequence, the current account deficit increased to 7.3 percent of GDP from 3.7 percent in 1999. The ratio of external debt to GDP decreased from 59.0 percent in 1999 to 57.8 percent in 2000. Official reserves stood at 1.5 months of merchandise imports. The Sri Lankan rupee depreciated by 9.9 percent on average in 2000, reflecting a deteriorating balance of payments.

Domestic policies: In 2000, the Government broadened the tax base, and rationalized the tax system and expenditure. To widen the tax base, the automatic waiver under the excise special ordinance was amended to minimize revenue loss, and the National Security Levy was extended to a wider range of services. In rationalizing the tax system, a Revenue Protection Unit was set up to strengthen revenue enforcement laws and prevent abuses. The Goods and Services Tax Law was amended to ensure smooth administration and to ease difficulties experienced in some sectors. Audit and management committees were established to improve financial prudence in public enterprises and statutory agencies, and a separate unit in the Ministry of Finance and Planning was set up to evaluate government expenditure. The central bank widened the bandwidth for foreign exchange trading, and allowed the rupee to depreciate against the US dollar at the end of 2000. The central bank also increased its overnight repurchase rate, a key instrument for the monetary policy, mainly to maintain stability in the foreign exchange market, with the rate reaching 20 percent at the end of 2000, compared with 9.2 percent at the end of 1999.

ADB operations

Operational strategy: ADB’s operational strategy for Sri Lanka, finalized in 1999, focuses on assisting the country’s poverty reduction efforts through improved efficiency, more sustainable pro-poor economic growth, and better development opportunities for the poor. These objectives are being achieved by supporting policy and institutional reforms to promote private sector development and improve public sector management; supporting human development to address the gap in marketable skills and thereby improve employment and income levels, especially in areas where the poor are concentrated; enhancing the country’s infrastructure through public and private investment and an improved sector policy and regulatory environment; preserving the country’s natural resource base; and instituting measures to mitigate the social and environmental impact of economic transition.

Policy dialogue: Policy dialogue with the Government focused on improving public sector governance and efficiency, promoting private sector growth, and reducing poverty. ADB worked with the Government to resolve issues of good governance, accountability, transparency, decentralization, and cooperation, and coordination among government and nongovernment public and private institutions. ADB continued its efforts to build local capacities to support the Government’s policy on decentralization and the devolution of power to the provinces, which the Government considers to be a possible solution to the civil conflict. ADB also provided a program cluster for private sector development, aiming to facilitate private sector entry and participation in the economy through an enhanced market system; increased labor market mobility; and improved private sector access to finance. The policy dialogue on poverty reduction was strengthened in all sectors of ADB’s program.

Loans and technical assistance: In 2000, ADB approved seven loans totaling $234.7 million: Forest Resources Management Sector, Water Resources Management, Secondary Education Modernization, Protected Area Management and Wildlife Conservation, Private Sector Development Program (two loans), and Kelanitissa Power (private sector loan). ADB also approved 11 technical assistance grants totaling $6.7 million to support institutional capacity building and to prepare projects.

Project implementation: Since joining ADB in 1966, Sri Lanka has received 99 loans, of which 29 were active at the end of 2000. Contract awards totaled $57.8 million, bringing the cumulative figure to $1.7 billion. The contract award ratio was 7.6 percent, lower than the ADB-wide average of 21 percent. Disbursements during the year totaled $81.0 million, bringing cumulative disbursements to $1.7 billion. The disbursement ratio was 13.2 percent, lower than the ADB-wide average of 20.5 percent.

A country portfolio review was undertaken in October 2000. Portfolio performance was characterized by delays in start-up and project implementation, caused by cumbersome and time-consuming contracting and procurement rules and procedures, and noncompliance with some major financial loan covenants. Five measures which will accelerate procurement and remove impediments to project implementation include (i) increasing the level of authority for awarding contracts for projects financed by external funding agencies, (ii) including project directors in technical evaluation committees to promote ownership, (iii) adding guidelines on advance procurement action in government bidding procedures, (iv) using ADB’s standard bidding documents in all procurement, and (v) implementing a new circular for establishing the project management unit and appointing the project director and other staff.

Additional measures taken by the Government and ADB for improving overall portfolio performance include identifying key impediments to smooth implementation of the loan portfolio, providing training seminars for staff of executing agencies on ADB’s loan administration procedures and requirements, and convening monthly portfolio performance review meetings with project directors and officials of line ministries.

   

Back Pakistan	Next The Pacific