WB eyes continued consistency in policy with NPP
The World Bank is confident that Sri Lanka’s new government will continue to pursue measures already adopted and set in motion; but noted that if there is a reversal of the plans already made it could have an adverse impact on the country going forward.
“Everything we’ve heard is that there will be consistency in policy,” World Bank Senior Economist Richard Walker told The Sunday Times Business on Thursday on the sidelines of the media briefing held to release the South Asia update at the World Bank head office in Colombo.
It was pointed out that however, they expect certain changes to be proposed in achieving the goals, but that the goals themselves will remain the same.
In this respect going by their policy manifesto the World Bank was confident that the agreements entered into with the previous government could be continued including State Owned Enterprises (SOE) reforms, it was noted.
The report highlighted the country’s potential for achieving higher and sustainable growth through trade through its untapped US $10 billion annual export potential.
The report further states that there is a significant opportunity for diversifying and expanding exports in manufacturing, services and agriculture, provided the necessary reforms are implemented.
“Policy consistency is important but if there are reversals it will impact on the economic progress,” Mr. Walker noted. He pointed out that maintaining policy consistency is required to address household incomes and poverty; cash transfers and subsidies; revenue mobilisation.
He explained that Sri Lanka’s export potential could be tapped by gaining a share of the large Indian market next door by engaging in light manufacturing, the production of machinery and equipment for exports.
In addition, he noted that the apparel industry in Sri Lanka is mostly focused on a niche market segment but they could diversify into other areas that would provide them with greater opportunities for increased exports in this sector.
Another area for expansion of exports will be the agricultural business that receives assistance from the World Bank and IFC.
He also noted that it would be necessary to integrate smaller growers as well in the supply chain and also improving the supply of products.
In terms of investments, the World Bank focused on possible investment opportunities into the agricultural business sector, industrial, manufacturing and the logistics and transport sectors.
Further, Mr. Walker highlighted that Sri Lanka needs to focus on port management that will enable the Colombo Port to enhance and improve its performance by engaging the right investments in this respect.
Looking ahead the report projects a modest growth of 3.5 per cent in 2025. Growth is then expected to follow a modest path over the medium term due to the scarring effects of the economic crisis. Poverty is expected to gradually decline but remain above 20 per cent until 2026. Inflation is likely to stay below the central Bank’s target of 5 per cent in 2024, gradually increasing as demand picks up. The current account is projected to remain in surplus in 2024, driven by tourism and remittances, the report stated.
Commenting on the expectations of the doubling of the growth rate that will reach 4.4 per cent this year was as a result of the faster recovery from the economic crisis in some sectors like tourism, finance and IT services.
Moreover, there had been a notable increase in the work in the construction sector which was a result of the government support extended towards this industry, it was pointed out.
Some of the key recommendations are that Sri Lanka needs to scale up structural reforms; enhance competitiveness and address the root cause of the crisis, Mr. Walker said.
He also noted that the archaic labour laws need to undergo reforms and engage increased female participation in the workforce.
Sri Lanka is perceived to have become more inward oriented as a result of which the country needs to focus more on its exports and move from its traditional exports as well.
Moreover, the investments to Sri Lanka are low due to high tariffs and also there is a need to remove para tariffs.
Further with FDIs being below aspirational peers for which it was recommended to remove restrictions on encouraging FDIs.
Meanwhile, World Bank Economist Shruthi Lakhtakia pointed out that despite the positives indicating a growth in the economy and improved performance in various sectors however, the macroeconomic outcomes have not yet translated to show an impact on the households.
As a result there continues to be felt a loss in real wage, loss in real income, less labour participation that all contributes to longer and medium term impact. It is still evident that there is an uptake in the malnutrition and infant mortality rate as well.
In addition, it was pointed out that in future the pressure on the external sector would be felt when repayments start to kick in and when vehicle imports recommence early next year. As a result growth is expected to slow down in 2025.
The Sri Lanka Development Update is a companion piece to the South Asia Development Update, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyses policy challenges faced by countries in this region. The South Asia report this year focuses on Women, Jobs and Growth that projects a6.4 per cent growth in the region this year and calling for increased women participation in the labour market.
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