The Asian Development Bank (ADB) is adjusting operations in Sri Lanka to align them with the evolving needs and the priorities of the country, and hopes the government will take sufficient initiatives to diversify and expand its manufacturing and export bases to increase foreign exchange earnings.
More than five years since the end of the war in 2009, Sri Lanka’s development is entering a new phase. The new government formed in January 2015 places emphasis on more inclusive economic growth, ADB’s Chief Economist, Professor Yasuyuki Sawada told the Sunday Observer in an exclusive interview.
ADB has been adjusting its operations in Sri Lanka to meet the country’s economic needs over the last couple of years. “We have brought the agriculture and natural resources sector into our operations with the Mahaweli Water Security Investment Program which was approved in 2015,” he told the Sunday Observer on the sidelines of the Annual Meeting of the Board of Governors of the ADB in the Japanese city, Yokohama.
ADB has increased the allocation for the education sector to strengthen support for human capital development, and included assistance for higher education, in addition to secondary education and skills development in Sri Lanka.
A line of credit to support small and medium-sized enterprises (SMEs) was approved in 2016 to support the government’s efforts toward inclusive growth. In the transport sector, ADB will continue to support the integration of rural areas into the main road network, while expanding assistance to expressways, railways, and ports.
Prof Sawada said, with 100% rural electrification expected to be achieved in 2021, ADB’s intervention in the energy sector will focus more on developing renewable energy and strengthening the stability and reliability of power supply.
In conjunction with the International Monetary Fund’s extended fund facility, the Capital Market Development Program was added into the 2016 pipeline. The program aims to boost the capacity and efficiency of capital markets to mobilize additional financing for the private sector in Sri Lanka.
ADB projects Sri Lanka’s GDP growth this year to be around 5%. Commenting on this low growth, Prof Sawada said, the growth will be constrained by tight fiscal and monetary policies under the IMF program. “Because consumption will be subdued, private investment will again have to play a primary role in maintaining economic growth. The higher VAT introduced in 2016 and improved income tax collection in 2017 will depress consumption, outweighing the positive impact of a modest increase expected in worker remittance earnings. While the March Maha rice harvest was expected to be affected by continuing drought, an assumed return to normal rainfall promises to allow agriculture production to rebound from the second quarter.”
Talking about Sri Lanka’s failure to attract sufficient investments and push export growth Prof Sawada said, Sri Lanka needs to continue its efforts to diversify and expand its manufacturing and export base and prepare for natural disasters, including those induced by global climate change.
“Despite reaching per capita income close to the upper-middle-income threshold, Sri Lanka persistently relies on a narrow manufacturing base. And, 60 % of the country’s exports still depends on apparel and tea, and worker remittances. Since the end of the war in 2009, Sri Lanka has not attracted foreign direct investment in manufacturing that could significantly increase its export capacity. Overcoming these challenges will be critical for the country to reach high income status,” he said.
Finance chiefs gathered Thursday in Yokohama near Tokyo for the ADB’s annual meeting to promote regional cooperation amid concerns about protectionism and to discuss ways to achieve sustainable and inclusive economic growth.
Around 5,000 participants, including central bank governors, government officials and business leaders from the Asia-Pacific region, North America and Europe are participating in the annual event to be concluded today (May 7).