Sri Lanka urged to keep economic reforms on track
World Bank South Asia VP says Sri Lanka among stronger economies in SA
But says to reach full potential, economic reforms paramount Says growth rate should ideally be around 6% instead current 3.4%
The World Bank yesterday tipped Sri Lanka as one of the stronger economies in the South Asian region, but asserted the country is yet to reach its full potential, and will struggle to do so until it gets the much needed economic and fiscal reforms on track.
World Bank Vice President South Asia Region Dr. Hartwig Schafer, who is on a brief visit to Sri Lanka said, the development lender remains positive of the island nation being “well on the road” towards reaching upper-middle income status.
But he stressed there are a number of pressure points that require urgent attention.
“Why are we (Sri Lanka) not reaching the full potential? There is a need to break the fiscal pressures. There is a need to look at the expenditure, the high losses of the State-owned enterprises, and make sure there is some spending to the social sector,” Dr. Schafer said in his address at the launch of Sri Lanka Development Update in Colombo yesterday.
According to him, the country’s growth rate should ideally be around 6 percent as opposed to the current 3.4 percent as much “hard work” is observed to have been carried out in the areas of economic reforms to achieve higher growth rates, alongside being backed by a skilled labour force.
It was stressed that one of the major pressure points faced by Sri Lanka is the huge debt burden which in turn has dampened the performance of the country and the overall confidence of the economy.
The Sri Lanka Development Update pointed out that the country’s debt management has not evolved sufficiently for many decades to deal with emerging challenges.
Although the costs and risks of the debt portfolio have been evolving along with market access, market development, use of new instruments and increased vulnerabilities in the global environment, Sri Lanka’s debt management function and structures have not kept pace.
The report stated that deficiency in Sri Lanka’s debt management is a holistic view, which covers all related functions from planning to risk management, in the absence of a dedicated unified institutional framework.
Dr. Schafer pointed out that in the present context, the fragmented institutional framework and lack of a comprehensive debt management strategy lead to important risks being not addressed.
The World Bank noted that restrictive trade policies over the past decade have created a strong anti-export bias, which has been reflected in a dramatic decline in trade.
Dr. Schafer affirmed that the World Bank will continue to extend to the country the required support towards reforms and will assist in creating the necessary “vibe” to increase the flow of Foreign Direct Investment (FDI).
With the World Bank currently is facilitating about 14 projects to the tune of US $ 1.8 billion, across diverse sectors, Dr. Schafer said the agency will “do more of that” to bring in newer investments to help the island nation have access to financing at lower costs to help reduce the cost of borrowing.