2018年-世界发展银行全球_Sri_Lanka_Development_Update_June_2018___More_and_Better_Jobs_for_an_Upper_Middle-Income_Country_57页_2mb

Sri Lanka Development Update Summary

Core Content

The Sri Lanka Development Update provides an overview of the country's recent economic developments, medium-term outlook, and key policy priorities. It also focuses on job creation as a central theme for sustainable growth and development in an upper middle-income country.

Main Points

1. Recent Developments

• Macroeconomic Performance:

  • Improved performance was partially masked by adverse weather conditions in 2017.
  • The economy grew at 3.3% in 2017, a 16-year low, due to the negative impact of floods and drought on agriculture and related sectors.
  • Fiscal and monetary policies helped stabilize the economy, but the current account deficit widened due to increased petroleum imports and lower export volumes.
  • The central bank accumulated reserves to a historical high in 2018, supported by capital inflows and foreign exchange purchases.

• Policy Reforms:

  • The new Inland Revenue Act was implemented in April 2018, marking a milestone in fiscal consolidation.
  • Fuel price reforms in May 2018 aimed to reduce fiscal risks from state-owned enterprises (SOEs).
  • The Active Liability Management Law was passed to address refinancing risks in the future.
  • The phase-out of 1,200 para-tariffs in December 2017 is expected to enhance competitiveness.

• Fiscal and Debt Management:

  • The government achieved a primary surplus in 2017, but a sharp increase in interest expenditure raised the overall deficit to 5.5% of GDP.
  • Public debt reached 77.4% of GDP, while treasury guarantees for SOEs and state agencies accounted for 6.8% of GDP.
  • Fiscal risks remain high due to non-discretionary expenditures and inefficiencies in tax administration.

• Poverty Reduction:

  • Poverty reduction continued to be strong, with the poverty headcount ratio falling from 16% in 2012/13 to 9.5% in 2016.
  • The country is expected to sustain poverty reduction through structural transformation, urbanization, and targeted public investments.

2. Outlook, Risks and Policy Priorities

• Growth and Inflation:

  • Growth is expected to pick up in the medium term, reaching around 4.3%, driven by private consumption and investment.
  • Inflation is projected to stabilize at a mid-single-digit level, though oil price increases may exert upward pressure.
  • The shift to flexible inflation targeting is expected to help keep inflation under control.

• Fiscal Consolidation:

  • The primary surplus is expected to help narrow the overall fiscal deficit to 3.9% of GDP by 2020.
  • Public debt is projected to decline from 77.4% in 2017 to 74.8% by 2020.
  • Continued fiscal consolidation is crucial to reduce the debt burden and improve fiscal space for development.

• External Risks:

  • The external current account deficit is expected to widen due to rising commodity prices and increased oil imports.
  • FDI inflows and external term financing will help offset external financing needs.
  • The Active Liability Management Act will mitigate refinancing risks, especially with upcoming Eurobond repayments.

• Key Risks:

  • Domestic political risk remains the most significant threat to the medium-term outlook, especially with the upcoming election cycle.
  • Natural disasters could affect growth, fiscal budget, and poverty reduction.
  • Global financial conditions tightening may increase the cost of debt and make refinancing more difficult.

3. Special Focus: More and Better Jobs for an Upper Middle-Income Country

• Employment Challenges:

  • Sri Lanka has a low employment rate relative to its income level, mainly due to low female labor force participation.
  • High youth unemployment is a critical issue that needs to be addressed.
  • The government has set an ambitious target to create 1 million jobs by 2025 under the Vision 2025 policy.

• Job Creation Priorities:

  • Job creation should focus on youth and women, who are key contributors to the labor force.
  • The Northern and Eastern Provinces, which are post-conflict areas, require more job opportunities to support development.

• Comparative Analysis:

  • Sri Lanka is an employment outlier in South and East Asia, with lower employment rates compared to its peers.
  • The country needs to improve labor market dynamics and economic competitiveness to enhance job creation.

Key Information

• Key Reforms:

  • Inland Revenue Act (2018): Aims to improve revenue collection and fiscal consolidation.
  • VAT and Excise Reforms: Expected to expand revenues and improve tax administration.
  • Public Finance Act: Being drafted to strengthen public financial management.

• Fiscal and Debt Management:

  • Primary surplus in 2017 helped reduce the overall deficit.
  • Interest cost has been a major fiscal burden, rising from 4.2% of GDP in 2014 to 5.5% in 2017.
  • Debt management needs to be strengthened with institutional, legal, and strategic frameworks.

• External Environment:

  • Improved external environment due to growth in the US and Euro Area, and recovery in some Middle Eastern countries.
  • Exports (tea, garments, tourism) and FDI are expected to support the economy, but remittances are slowing down.

• Policy Recommendations:

  • Continue fiscal consolidation to reduce the debt burden and improve public investment.
  • Implement reforms in governance, public financial management, and competitiveness.
  • Strengthen debt management and refinancing strategies.
  • Enhance communication with stakeholders to ensure support for the Vision 2025 agenda.

World Bank Group Assistance

• The World Bank Group continues to support Sri Lanka with technical assistance and policy analysis.
• Assistance includes fiscal reforms, debt management, governance improvements, and trade and competitiveness.
• The IMF Extended Fund Facility (EFF) program is ongoing, with a focus on revenue enhancement, flexible inflation targeting, and SOE reforms.

Conclusion

To sustain growth, reduce poverty, and create more and better jobs, Sri Lanka needs to continue its structural reforms, improve public financial management, and enhance economic competitiveness. The political environment and natural disaster risks remain key challenges that must be addressed to ensure a favorable medium-term outlook.