Modest success towards achieving CAS outcomes – WB

by Gamini Warushamana

The Country Assistance Strategy (CAS) progress report 2006 of the World Bank (WB) released last week said that Sri Lanka is facing greater challenges as political constraints and uncertainties have affected the peace process, policy implementation and the environment for pro-poor broadbased economic growth in the country.

The present average economic growth of 5% is not adequate to significantly reduce poverty beyond urban areas. There are vast differences among regions and sectors as well as rich and poor inequality has risen sharply. Macro economic performance weakened in 2004 and the fiscal situation remains under severe stress, the report said.

The reforms needed have proved elusive in the face of the political instability and challenge of recovering from the tsunami. Economic performance continues below potential and the reform agenda remains on the back burner.

Considering uncertainties in the reform and the peace process the bank proposes a significant shift in the structure of its activities and proposes a core program of investment and analytical activities that would support the outcomes in the three thematic areas (Peace, growth and equity).

Hence the indicative program would not place poverty reduction support credit (PRSCs) at the centre as proposed in the CAS.

However, the report does not propose to change the core strategy and provides options of policy-based lending in a higher case in the event of an improved framework. The report evaluates the implementation of the WB program since April 2003 CAS and proposes a strategy for going forward in the near term.

However, at the opening of the WB public information Centre in Colombo and the presentation of the CAS progress report the country director Peter Harrold expressed satisfaction over ending the three-year long deadlock in the peace process and resumption of peace talks.

The Poverty Reduction Strategy of the WB was organised around three central themes; peace, growth and equity. Restoration of domestic security was considered critical for sustainable poverty reduction and growth as well as to make the fiscal burden tolerable and reach the most vulnerable groups such as displaced and conflict affected.

Economic growth was the main instrument for achieving prosperity and creating more resources for distribution. Ensuring balance/equity within the society was essential, especially with deep pockets of poverty existing in the North, South and East, according to the report.

CAS was developed around key outcomes defined for each of the three pillars and it was proposed to achieve 33 outcomes. It was quickly realised that the number was excessive and after reviewing and prioritisation it was reduced to periodically monitored 16 outcomes.

The report said that overall, there has been modest success towards achieving CAS outcomes with 43% showing improvements.

The report evaluates the outcome performance of each pillar. Accordingly education facilities in the conflict affected areas restored to pre-war level to be achieved and by the end of 2004 calendar year the percentage of children enrolled in basic education in North and East was at 71%.

Water supply for irrigation has increased and this was seen in the increase in paddy production from 202.4 tonnes in baseline year 2002 to 1,371.4 tonnes in 2004.

In the growth pillar, GDP growth recorded 5.4% in 2004 compared to 4% in 2002. The result based budgeting allocations for operations and maintenance declined from 31% to 28% while capital expenditure increased from 14.5% to 17.6%.

The report said that other public sector reforms that were designed to lay the foundation for future economic growth by reducing the role of the state and reduction of public employment were reversed and remain an issue for long term results.

In the financial sector the Central Bank refocused towards managing its core functions. Non performing loans to total loans outstanding in state banks declined from 16.9% to 11.4% while in all commercial banks the ratio declined from 14.4% to 9.1%. The announcement of the monthly monetary policy by the Central Bank is another performance.

Drafting Monetary Law, Banking Law and Finance Companies Act, Money Laundering and Financial Transactions Report Act and suppression of Terrorist Financing Amendment to the Monetary Law Act are milestones for the financial sector in the financial year 2006.
