News Release No:2003/427/SAR
Washington, June 17, 2003 - The
World Bank today approved a US$125 million Poverty Reduction Support Credit
for Sri Lanka which builds upon the country's poverty reduction strategy
outlined in "Regaining Sri Lanka: Vision and Strategy for Accelerated
Development".
The Government's strategy is designed to move the country along a path of economic growth to reduce poverty by improving governance in the public sector, creating a safe and secure investment climate for greater private sector participation, and by investing in human development and empowering the poor. The challenge of securing a lasting peace will require a sustained reduction of conflict-related poverty throughout the island of Sri Lanka.
"With the successful implementation of the Government's program, Sri Lanka has a great opportunity to strengthen macroeconomic stability and achieve an economic performance commensurate with its human and natural resources, "says Tercan Baysan, World Bank team leader for the project. "The strategy reflects a fundamental change in the role of the State with a clear departure away from the unsustainable policies of redistribution or transfers to ones that create an enabling environment for faster economic growth and poverty reduction."
The Poverty Reduction Support Credit (PRSC) is a new lending instrument of the World Bank's International Development Association (IDA). It is designed to assist with the policy and institutional reforms countries have formulated to implement their own poverty reduction strategies. Unlike earlier policy reform support instruments, the PRSC is placed firmly within the Government's three- to four-year program, and a series of such credits over time is envisaged. Since it recognizes progress achieved to date, it caries no policy conditions.
The main targets of the strategy are increasing the GDP growth rate to 7 percent within the next three years and reducing national poverty rates from 25 percent to 20 percent and the rural rates from 27 percent to 22 percent by 2006.
In its strategy, the Government has indicated it will work with the World Bank to strengthen the economic environment with private sector participation to create growth opportunities for the rural sector where 90 percent of the poor reside. Reforms in labor, financial, and land markets, and in the power sector will focus on accelerating economic growth and supporting a greater role for the private sector. These are the key reforms that have been shown by surveys to be the main obstacles to increased private investment.
"We are committed to supporting poverty reduction in Sri Lanka, and this can only come through economic development. This requires sound economic and social policies, which this Credit supports, and this also requires peace," says Peter Harrold, World Bank Country Director for Sri Lanka. "Our contribution to the peace Process is primarily to support the reconstruction of the conflict affected areas and the rebuilding of capacity. In addition, it is vital to restore and improve public services in the North East of Sri Lanka, and a significant proportion of the resources provided under this credit are designed to facilitate this."
The strategy will augment these efforts by introducing measures to strengthen governance in the public sector, implement reforms in financial management and accountability, and address vital issues in environmental management. Parallel to these programs, the World Bank will support the Government's programs to invest in its people to build an equitable and conflict-free society. These programs include building the capacity of the poor to lift themselves out of the poverty cycle by increasing access to quality education, streamlining the welfare system's safety net programs, and addressing the re-settlement and rehabilitation needs of the poor and displaced in the post-conflict era.
The Government has made significant progress in the implementation of this strategy. Achievements include:
- Better Government expenditure targeting
and revenue augmentation resulting in reduced budget deficit and need to
borrow;
- Fiscal Management Responsibility Act
passed with medium term targets for budget deficits and public debt and
measures to discourage election hand-outs;
- New Welfare Reforms Act designed to
better target the poor;
- Insurance industry regulatory authority
established and increased private sector participation in the industry
encouraged;
- Pro-competition reforms in telecommunication,
energy, and other utilities; and
- Independent Public Service Commission re-established to de-politicize recruitment and promotion in the public sector.
This credit was being finalized just when Sri Lanka was hit by the worst flooding since Independence. In order to assist the Government to defray the costs of repair after the floods, the credit was increased at the last minute by US$15 million, which will be used to help the Government cover some of the emergency works in such areas as housing and water supply.
The strong programs outlined in the Government's strategy are important vehicles for anchoring the World Bank's overall support, the Country Assistance Strategy (CAS) for Sri Lanka. It is envisaged that a second PRSC will follow in 2004 and a third in 2005. The World Bank credit will complement and run in parallel with the recently approved International Monetary Fund's (IMF) three-year program of Poverty Reduction and Growth Facility (PRGF) and Extended Fund Facility (EEF) credit to Sri Lanka.
The PRSC carries no interest and 0.75% service charge, maturing in 40 years with a 10-year grace period.
Contacts:
In Colombo: Chulie De Silva
e-mail: cdesilva@worldbank.org
Tel. (94-75) 561-323
In Washington: Zita Lichtenberg
Tel. (1-202) 483-8503
e-mail: zlichtenberg@worldbank.org