World Bank - SL must address macroeconomic imbalances

After a 2-day visit to Sri Lanka this week, World Bank Managing Director of Operations, Graeme Wheeler said he recognizes that Sri Lanka's northern and eastern regions have long been excluded from economic growth and the development experiences in much of the rest of the country.

At a press conference on Thursday, Wheeler said the environment in which Sri Lanka must pursue its development is extremely challenging and the conflict remains a major obstacle to the country achieving its full potential. "My interactions over these days have reinforced my view that the conflict is an enormous burden on both the Sri Lankan people and country's longer term economic prosperity," he said. "In particular, I was saddened to hear many stories from the communities and people I visited about the daily challenges they face in trying to return to normal lives."

Moreover, Wheeler said he also heard stories that echo the concerns expressed recently by United Nations High Commissioner for Human Rights, Louise Arbour regarding the large number of reported killings, abductions and disappearances. He further described the weaknesses in the rule of law as 'alarming.' Wheeler did say that nevertheless, he is encouraged to see that the government's partnership with the World Bank is providing not only physical reconstruction and assistance in conflict-affected communities but also helping to repair the fragile social fabric that has been so badly damaged by the conflict.

"During my visit to (northern) Vavuniya, I met villagers who are rebuilding their homes, livelihoods and lives," Wheeler said. "These programmes are being implemented in a manner in which discrimination, exclusion and gender inequality are being minimized and communities and individuals are being empowered." However, he did say there is still much to do. "The goal should be to ensure that all communities in Sri Lanka are able to live together harmoniously and build a better future."

Wheeler said the current situation in the East provides an opportunity to implement much needed development activities in a manner in which the people are included and involved in the process and results on the ground are shared equally by all ethnic groups. The government is currently compiling a plan for the reconstruction of the East. Wheeler said he is urging the government to develop a plan that incorporates these characteristics. "I understand that many communities still feel insecure and are hesitant to invest heavily in their future," he said. "To ensure that such feelings are short-lived, it is important to complete the transition from military to civilian control at the earliest opportunity so that effective and sustainable development activities can be more successful."

Looking beyond the conflict, Wheeler said Sri Lanka has tremendous development opportunities. The Asian region is likely to drive global economic growth for many years to come but Sri Lanka will only be well positioned to be able to take advantage of this dynamism with sound economic management and strong trade and investment linkages. However, Wheeler said there are major challenges. "In addition, Sri Lanka's economic growth is slowing and it needs to address important macroeconomic imbalances. The rate of inflation is approaching 20% and the government budget deficit and debt levels are too high. The World Bank is happy to be Sri Lanka's partner in helping to address these issues." Wheeler further added that in order for the country to improve its fiscal position, the security issues must be addressed.

The World Bank is currently working with the government on an assistance strategy for the next four years. Wheeler said the World Bank will remain engaged in Sri Lanka including assisting the efforts to reconstruct the East and other conflict-affected areas. The Bank's engagement will be carried out in a 'conflict sensitive' manner whereby both the causes and consequences of the conflict will be addressed as much as possible in all ongoing and future activities.