|Project Rationale and Linkage to Country/Regional Strategy
The government's 10-year development plan (2006-2016), the Mahinda Chintana, prioritizes investment in developing basic infrastructure and services, including supply of drinking water and access roads. It further emphasizes the need to re-design the development programs to give the larger share of development benefits to the poor, through the provision of improved infrastructure and market facilities, among others. Local service deficiencies in local authorities include deteriorated roads, inadequate supplies of potable water, poor drainage and domestic sanitation, and inadequate health and market facilities. Local authorities in the North and East also face severe constraints in their capacities to effectively discharge their responsibilities. Other local authorities are likewise incapable of providing public health and environmental infrastructure services to keep pace with the increasing economic productivity of households. As the income inequality is rising and the poor areas tend to have poorer quality of and access to basic facilities and services, there is an urgent need to cater to the needs of lagging areas in the country.
ADB approved the Local Government Infrastructure Improvement Project (LGIIP) in 2005 to respond to the needs of local authorities in improving basic infrastructure and services. In alignment with the government's devolved structure, local authorities are implementing subprojects in the areas of water supply, roads, drainage and sewerage, and other municipal facilities including public libraries, health centers, and office buildings, through financing from the Local Loans and Development Fund (LLDF). While local authorities were at first reluctant to contribute 7% and borrow 33% to 53% of subproject costs, demands have gradually increased and already surpassed the allocation under the LGIIP. The LGIIP has adopted a bottom-up and demand-driven approach, where the local authorities are responsible for identifying, preparing, proposing, and implementing subprojects. As against the common practice of grant-based financing for basic infrastructure improvement, a partial-debt financing even to small local authorities has brought a paradigm shift, providing local authorities with higher ownership and strong incentives to increase revenue collection and improve the financial management, while a revolving fund from repayments created in the LLDF would enable further financing to local authorities. There are additional financing needs to respond to growing needs of basic infrastructure and services for people s better livelihood.
While lessons from the LGIIP will be analyzed in depth during project preparation, one limitation found was that some pradeshiya sabhas are unable to benefit due to their financial constraints. The loan amount is capped at two times the local authority s annual own revenue in order to ensure repayment, but this makes many poor pradeshiya sabhas ineligible to obtain financing from the LGIIP. The Ministry of Local Government and Provincial Councils (MLGPC) is going to finalize by September 2010 a set of indicators to define lagging local authorities, and the project would mainly support infrastructure development of the lagging local authorities satisfying the criteria.
The cessation of military confrontation in May 2009 brought to an end nearly three decades of internal armed conflict. A large number of development projects with significant financial resources will be or are being implemented in the North and East, including the North East Local Services Improvement Project (NELSIP) financed by the World Bank. There is a need to see the performance of local authorities under NELSIP to ensure they have the adequate absorption capacity to take up additional projects, while provision of vital social and economic infrastructure and services in these provinces remains a major challenge. Other provinces such as Sabaragamuwa and Uva recording high provincial poverty rates face a similar challenge of providing vital infrastructure and services to their citizens. Geographic focus of the project will be further discussed during project preparatory technical assistance (PPTA) implementation.
The project is in line with the second pillar'achieving socially inclusive development' and the urban sector road map of ADB's Sri Lanka country partnership strategy, by helping the government provide greater access to economic and social services for the poor and those living in conflict-affected areas.