World Bank Managing Director Sri Mulyani Indrawati on Saturday said the multilateral donor was happy with Sri Lanka’s recent progress, but emphasised several challenges remained to ensure sustainability of growth via reforms and greater private sector role.
Describing her first visit to Sri Lanka as “productive,” Indrawati’s assessment was following a series of meetings with President Mahinda Rajapaksa, Ministers, officials, Opposition MPs, the private sector, and NGOs, as well as a tour to the north during a four-day stay.
“It is very encouraging to see high growth in Sri Lanka, especially following the end of the war. However, the challenge for Sri Lanka is to sustain this impressive performance over the medium to long term and reduce inequality among provinces and income groups,” emphasised Indrawati, who prior to joining the World Bank in 2010 was Indonesia’s Minister of Finance, in addition to being the Coordinating Minister of Economic Affairs.
“High growth doesn’t mean there are no problems,” said Indrawaiti, adding, “No country has the luxury to be complacent.”
Briefing journalists, Indrawati said continued reforms in the areas of fiscal policy and public sector leading to a lower Budget deficit, lower public debt, and improved efficiency as well as a conducive environment for a greater role for a higher quality and competitive private sector would help Sri Lanka’s forward march. Better productivity and improved quality of human resource and skills level were also cited as important.
Whilst noting that there has been a good increase in public investment, she said Sri Lanka must attract greater inflow of foreign capital if the country is keen to sustain high growth. For this, a credible framework is important to make Sri Lanka’s economic potential ‘the pull factor’ given its natural resources, strategic hub location, and quality of its people.
“We are encouraged by the fact that the ‘Mahinda Chinthana’ policy document addresses these challenges and structural issues. If resolved, Sri Lanka can unleash the economy’s potential to its fullest,” the World Bank MD added.
One of the three Managing Directors of the World Bank, Indrawati is responsible for the institution’s operations in all regions of the world. In addition, she oversees other administrative vice-presidencies and functions, including the Integrity Vice Presidency, Sanctions Board Secretariat, and the Office of Evaluation and Suspension.
The improvement by Sri Lanka in the World Bank-International Finance Corporation compiled Ease of Doing Business was commended by Indrawati and further progress will ensure the quality of the private sector, both local and foreign, being improved, leading to higher investments.
“Improving quality of the private sector and attracting good foreign capital have a wider beneficial impact on the economy with better technology and best practices,” she added.
“Having a low tax rate is good but governments must ensure there is transparency and clarity with regard to computation,” she said, adding that a regime that ensures consistency and stability in policies is more favoured by local and foreign investors.
In response to a question whether the World Bank was concerned about the higher inflow of Chinese loans to Sri Lanka, Indrawati said: “Borrowing is not a problem as long as the country can ensure funds are productively used, enabling higher economic return, thereby sustaining the repayment capacity. This, along with ensuring quality of funding, transparency, and accountability, will help.”
The World Bank MD also said that the Government had made a commitment to reduce the budget deficit as well as public debt, which she said was welcome. She said a lower public debt was always a good cushion against internal and external shocks and referred to Indonesia’s move towards a public debt to GDP ratio of 23% from 60% previously.
With regard to the infrastructure development thrust by the Government especially in the north, she said: “Well-designed infrastructure will attract the right investment. This, along with engaging the community in the area, will ensure new infrastructure has a greater benefit to uplift the livelihood of the people. Given the resource constrains faced by governments, opening up infrastructure development for the private sector under Public-Private Partnerships is also important.”
The World Bank MD said that Sri Lanka as a progressive nation could learn from its own historical experiences as to what policies have worked right and what haven’t, as well as of other countries, and choose the best.
“As a partner for future development, the World Bank is keen to play a proactive role with financing and policy advocacy,” said Indrawati at the briefing, which included World Bank Sri Lanka Country Director Diarietou Gaye and IFC Country Director Adam Sack.
As of 31 March 2012, the World Bank’s Sri Lanka portfolio consisted of 14 projects with a total commitment of US$ 1.068 billion.