ADB, Sri Lanka Agree on Partnership Strategy

News Release | 24 October 2008

MANILA, PHILIPPINES - The Asian Development Bank (ADB) and the Government of Sri Lanka have forged a new Country Partnership Strategy (CPS) 2009-2011 designed to help improve the investment climate, unclog infrastructure bottlenecks, and ensure all segments of society benefit from the nation's solid economic growth.

Sri Lanka has posted an average economic growth of 5% per year over the past 30 years, putting it on the point of becoming a middle-income country. However, it has failed to reach its full potential because of civil conflict, weak infrastructure, and high public debt. Recent high global oil and food prices, a surge in inflation, and worsening prospects for the global economy also pose a threat to future growth and poverty reduction efforts.

"The aim of the CPS is to unlock the growth potential in an as equitable a way as possible. Economic growth in the first half of 2008 has remained strong at 6.6%. However, the external risks have increased, compounded by further signs that the global slowdown is more profound than many had expected, and this could have a significant negative impact on Sri Lanka's economy," said Richard Vokes, Country Director of ADB's Sri Lanka Resident Mission.

The partnership strategy has a twin focus. Firstly, ADB will continue to back stronger fiscal management to improve the macroeconomic environment and will step up support for infrastructure development, particularly in power and transport, and public-private investment partnerships. Currently, many private sector investors are reluctant to plough significant funds into the economy because of poor infrastructure, high taxes, policy uncertainty, civil conflict, and high financing costs.

Secondly, ADB will target better delivery of power, water, transport and other essential services in poorer provinces to make sure the fruits of development reach those most in need.

"The CPS will focus on provinces outside the relatively wealthy western province, targeting electrification of rural areas, linking provincial roads to rural roads and villages, upgrading water supply in lagging regions, and supporting urban development in selected secondary towns," said Johanna Boestel, Country Economist for ADB's Resident Mission in Sri Lanka, and team leader for the strategy.

To help achieve this, it will also seek to increase the capacity of provincial councils and local authorities to improve public service delivery. By strengthening rural infrastructure, ADB's support will also help boost agricultural efficiency which has become increasingly important with the spike in global food prices.

Because of uncertainties sparked by renewed fighting since 2006 in the more-than-two-decade conflict between the Government of Sri Lanka and the Liberation Tigers of Tamil Eelam - and to provide greater operational flexibility - ADB has reduced the term of the CPS from the usual five years to three years.

The issue of the conflict and how best ADB can contribute to its resolution have been central to the work of the CPS team. To this end, ADB will strive to provide a balance of support throughout the country while continuing implementation of ongoing projects and initiating new projects in areas that have been affected by the conflict, wherever possible. ADB will also ensure that its interventions are conflict sensitive, with strong emphasis on transparency and full and active consultation among all stakeholders.

The strategy supports the government's 10-year Development Framework that targets inclusive economic growth through improved infrastructure, increased private sector investment, and measures to boost the country's competitiveness.

Under the new three-year CPS, ADB is committing $630 million in loans for public sector operations, while overall assistance is expected to be higher with additional funds raised through private sector operations, public private investment partnerships, and cofinancing.