Countries and Regions

	Table of Contents
p. 9 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Operations IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Sri Lanka : III. Sector Strategies

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III. Sector Strategies

A. Agriculture

1. Agriculture and Rural Development

51. The Government continues to accord high priority to broad-based rural development to achieve the twin objectives of economic growth and poverty reduction. This is reflected in, among other things, the Regional Economic Advancement Program (REAP) initiated by the Government in 1997. The REAP concept includes four basic elements: (i) regional development plans; (ii) integrated village development; (iii) market-based farm enterprise development; and (iv) rural non-farm enterprise development. The Government also recognizes the significance of policy and institutional reforms for sustainable rural finance development and is moving toward a market-based system of rural finance to establish a strong link between rural financial markets and rural development.

52. The Government is currently implementing a program to phase out the subsidies given under the ongoing New Comprehensive Rural Credit Scheme, the interest subsidy cost of which was about 23 million rupees during 1999. The financial market reforms have already facilitated the entry of private sector development banks and commercial banks into rural and micro-finance. A number of such banks, including the National Development Bank and Development Finance Corporation of Ceylon Bank, are gradually expanding these operations. This trend is being further strengthened by the increasing competitiveness in the urban-oriented formal financial operations and the increasing recognition of opportunities for commercial rural and micro-finance operations by private sector service providers. The service providers are in need of support for downscaling and risk and transaction cost reduction of their operations, in addition to access for on-lending resources in the medium term. Furthermore, the rural population needs access to a broader spectrum of efficient financial services such as safe and reliable deposit service facilities and insurance services rather than just credit. These are well reflected in the innovative forward contract system that the Central Bank of Sri Lanka has introduced on a pilot basis through the Kandurata Development Bank¹¹as a solution to the perennial problem of price fluctuations in agricultural produce between the season and off-season.

53. Given their strong poverty focus, ADB will support the Government’s rural development initiatives mainly through assistance for rural development projects, needed policy and institutional reforms and strengthening, and for rural and micro-finance development. ADB’s support for rural and micro-finance is expected to enhance access of the poor to sustainable financial services on a continuing basis and assist a wide spectrum of financial institutions including NGOs to provide these services on a viable basis in response to the market demand. ADB has already approved a PPTA¹² to assist the Government to translate the REAP concept into a strategic framework, formulate an operational plan and prepare a detailed proposal for the Southern Province Rural Economic Advancement Project (2001) to address the high incidence of poverty in the province. ADB will provide a PPTA for Rural Finance Sector Development in 2001 to (i) assist the Government to address the key issues in rural finance policy and institutions and thereby further improve the enabling environment for sustainable operations, and (ii) prepare a rural finance sector development project for ADB assistance in 2003.

54. ADB approved the Plantation Reform Project in 1995, Second Perennial Crops Project in 1997, and Tea Development Project¹³ in 1998 to support the Government’s efforts in plantation crop sector reforms and development. In view of its significance for both economic growth and poverty reduction, continued support will be provided in the plantation sector. However, future assistance would need to focus more on development of processing of plantation products and improvement of research and marketing with a view to increasing its contribution to value addition while continuing support for productivity enhancing activities such as replanting and soil rehabilitation. It is also essential to harness land that is not viable for plantation crop production for other productive purposes. Currently, there are about 10,000 hectares of such land in the plantation sector.

2. Forestry and Natural Resources

55. The COS suggests that sustainable natural resources management should be one of the key areas for ADB’s involvement to ensure long-term sustainability of economic growth and reduce poverty. Strong emphasis on forestry, natural resources and environmental management as a feature of the ADB’s operations was derived from the recognition that some parts of the agriculture sector are experiencing a decline in productivity, while inter-sectoral competition for water resources is also emerging as a serious issue. Indicators, such as the incidence of human encroachment into protected areas, decline in forest cover and soil degradation indicate the growing and unsustainable imbalance between the supply and demand for the use of the country’s natural resources. In view of the need for improved management of environment and the natural resource base in Sri Lanka to ensure its long-term sustainability, support is planned for aquatic resources, biodiversity conservation, forestry development, and water resources management. Experience gained through several project preparatory activities indicates the need for future lending operations in the sector to particularly focus on: (i) definitional issues with regard to institutional and legislative arrangements; (ii) clarity of purpose and institutional mandates; (iii) effective engagement of stakeholders in policy making and management functions; and (iv) development of suitable mechanisms for effective coordination of agencies concerned with natural resources management.

56. Specific emphasis in ADB’s operations will be to effectively integrate natural resources management and related economic concerns into Sri Lanka’s development agenda. ADB’s program will continue to emphasize the need to strengthen policy development and strategic management capacity of public sector organizations. Simultaneously, emphasis on modernization of the legislative framework, greater reliance on stakeholder involvement, decentralization and introduction of economic price and mechanisms need to be pursued. Attention is also required to improve Government-wide systems for taking integrated policy decisions, determining the best service delivery agent and allocating financial resources to achieve stated objectives. ADB will support efforts to address poverty related environmental degradation and comprehensive natural resources management through more coordinated and integrated approach with increased private sector and community involvement.

57. An ADTA for Sustainable Natural Resources Management for Development¹⁴ was approved in 1999, to provide support to the Government in its efforts to identify urgently required policy and institutional changes and to rationalize the legislative framework for improving the present capacities for natural resources management. Over the period 2001-2003, ADB will continue its efforts to improve the policy environment. In addition to the provision of technical assistance to implement the main recommendations of the ongoing TA, there is also support planned for adopting policy changes through a sector development program planned in 2003 for Sustainable Eco-Management.

58. In the area of coastal resource development, ADB expects to cover part of the East Coast, based on the experience gained in the recently approved Coastal Resources Management Project¹⁵ . Particular emphasis will be placed on addressing the needs of the poorer sections of the coastal population in the Eastern Province to enable them to improve their livelihood activities. In coordination with Department of Wildlife Conservation, it is also expected to address the preservation of natural habitat in the water bodies along the East Coast. In view of the particular importance of aquatic resources development and quality improvement in Sri Lanka, a PPTA for Aquatic Resources Development and Quality Improvement (2001) is planned to develop a project to encourage private sector involvement in the above areas, particularly emphasizing inland fishery development.

59. Another important area of concern relates to the impact of the degradation of upper watersheds in Sri Lanka on water availability and quality in the lowlands. This is closely linked with the efforts of ADB to introduce a more efficient policy and practices for water resources management. These are to be implemented in the Water Resources Management Project being processed in 2000 and ADB will be keen to further expand these to the other river basins. Arresting the degradation of upper watersheds will be accorded priority, based on the experience gained in the ongoing project for the purpose. Similarly, protected area management will continue to be supported and a wider area covered under a second stage intervention. The primary objective of further support in protected area management is to improve management of these areas by involving all stakeholders, developing income-generating alternatives for the communities, in close proximity to the protected areas, to prevent encroachment and poaching and to combine protection with other compatible uses, such as tourism.

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