Sri Lanka - Key development issues in the 1980s (Vol. 1 of 2) : The medium term development framework

Report No. 2955-CE FILE Sri Lanka: UOPy Key Development Issues in the 1980s Volume 1: The Medium Term Development Program May 20, 1980 South Asia Programs Departmeni FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS /a End-December Currency Unit 1975 US$1.00 Rs 7.71 Rs 1.00 US$0.13 Rs 1 mn US$129,702 1976 US$1.00 Rs 8.83 Rs 1.00 US$0.11 Rs 1 mn US$113,250 1977 US$1.00 Rs 15.56 Rs 1.00 US$0.06 Rs 1 mn US$64,267 1978 US$1.00 Rs 15.51 Rs 1.00 US$0.06 Rs I mn US$64,475 1979 US$1.00 Rs 15.45 Rs 1.00 US$0.06 Rs 1 mn US$64,725 Annual Average Exchange Rates Foreign Exchange Entitlement Official Rate Certificate (FEEC) Rate /b 1969-1971 US$1.00 = Rs 5.95 Rs 9.22 (55% FEEC) 1972 US$1.00 = Rs 6.00 Rs 9.30 (55% FEEC) 1973 US$1.00 = Rs 6.40 Rs 10.56 (65% FEEC) 1974 US$1.00 = Rs 6.65 Rs 10.97 (65% FEEC) 1975 US$1.00 = Rs 7.05 Rs 11.63 (65% FEEC) 1976 US$1.00 = Rs 8.46 Rs 13.96 (65% FEEC) 1977 (Jan 1-Nov 15) US$1.00 = Rs 7.89 Rs 13.02 (65% FEEC) 1977 (Nov 16-Dec 31)) US$1.00 = Rs 15,76 _ 1977 US$1.00 = Rs 9.15 - 1978 US$1.00 = Rs 15.61 - 1979 US$1.00 = Rs 15.57 - 1980 US$1.00 = Rs 15.60 - /a The Sri Lanka rupee, which had been linked to the U.S. dollar from November 6, 1971, was re-linked to the Pound Sterling from July 10, 1972 onward at a parity rate of 1.00 = Rs 15.60. Parity rates with all other currencies were determined from time to time by the Central Bank. The rupee was delinked from sterling on May 24, 1976, and linked to a weighted basket of currencies. On November 15, 1977, the exchange rate was unified, depreciated, and allowed to float at a rate of US$1.00 = Rs 16.00. /b This rate applied to all exports other than tea, rubber and coconuts and all imports other than food, fertilizer and drugs. FEECs were abolished on November 15, 1977. This report was prepared by a mission composed of Messrs. K. Sarwar Lateef (Chief of Mission), D.J.W. Berkoff, John R. Borthwick, Hassan Fazel, Marcello Selowsky, Anthony Edwards (Consultant), and Mushtaq Hussain (Consultant), which visited Sri Lanka from December 1 to December 20, 1979.  FOR OFFICIAL USE ONLY SRI LANKA: KEY DEVELOPMENT ISSUES IN THE 1980s Volume I: The Medium Term Development Program Table of Contents List of Tables in the Text List of Annexes Country Data Map Page No. SUMMARY AND CONCLUSIONS ........................................ i-v I. RECENT ECONOMIC PERFORMANCE ............................... 1 Introduction .............................................. 1 The Reforms ............................................... 2 The Economy's Response .................................... 6 Balance of Payments, 1978 and 1979 ........................ 15 The Energy Crunch ......................................... 16 Conclusions ............................................... 17 II. STRATEGY FOR THE EARLY 1980s .............................. 18 Introduction .............................................. 18 A Twin Strategy ........................................... 19 Medium-Term Targets ....................................... 20 The Macro-Economic Framework .............................. 24 Financing Public Investment ............................... 27 III. THE PUBLIC INVESTMENT PROGRAM, 1980-1984 ..... ............. 35 INVESTMENT STRATEGY . ...................................... 35 Defining the Program Content ......... ..................... 35 From Scarcity to Excess . .................................. 36 The Revised Program . ...................................... 38 THE SECTOR PROGRAMS . ...................................... 40 The "Lead" Projects . ...................................... 40 Other Development Programs ........... ..................... 46 Conclusions ............................................ 48 IV. MATERIAL AND MANPOWER CONSTRAINTS ........ ................. 50 Introduction .......................................... 50 Developments in 1978 and 1979 .......... ................... 50 The Medium-Term Outlook . .................................. 52 Construction Materials ..................................... 53 Manpower Needs and Resources .......... .................... 55 The Contracting Industry ................................... 57 Conclusions ........... .............................. 59 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Continued) Page No. V. THE ROLE OF EXTERNAL FINANCE .............................. 61 Introduction ....... ....................... 61 Medium-Term Aid Requirements .............................. 61 Mahaweli Aid Requirements ................................. 63 Non-Mahaweli Assistance ................................... 66 Conclusions ............................................... 72 LIST OF TABLES IN THE TEXT Table 1: Changes in GDP and its Composition, 1970-1979. 6 Table 2: Key Agricultural Indicators ............................... 8 Table 3: Manufactured Exports, 1975-1979 ........................... 9 Table 4: Investment Approvals, 1978-1979 ........................... 10 Table 5: Savings and Investment, 1970-1979 ......................... 12 Table 6: Summary of Government Finance, 1978-1980 .... .... ......... 14 Table 7: Rates of Growth of Gross Domestic Product .... ............. 21 Table 8: Aggregate Supply and Use of Resources, 1979-1984 .... ...... 26 Table 9: Trends in Savings and Investment, 1979-1984 .... ........... 28 Table 10: Projected Financing for Government Investment Expenditures, 1980-1984 ................................. 29 Table 11: Summary Balance of Payments, 1980-1984 ................... 33 Table 12: Public Investment Program, 1979-1983 and 1980-1984 ... ..... 38 Table 13: Proposed Ph.sing of Public Investment Program, 1980-1984 .. 39 Table 14: Public Housing Program, 1979-1984 ......................... 44 Table 15: Indices of Construction Costs, 1976-1979 .................. 50 Table 16: Combined Cost of Non-Housing Construction Activity by Region ............................................... 51 Table 17: Potential Supply Shortfalls for Cement .................... 54 Table 18: Additional Medium-Term Needs of Skilled Workers .... ....... 56 Table 19: Net Petroleum Imports, 1978-1984 .......................... 62 Table 20: Accelerated Mahaweli Program - Foreign Financing .... ...... 64 Table 21: Accelerated Mahaweli Program - Foreign Financing Gap 1980-1984 ............................................... 65 Table 22: Non-Mahaweli Aid Commitments and Disbursements, 1979-1984 . 66 Table 23: Financing of External Resource Gap, 1978-1981 .... ......... 69 Table 24: Aid Pipeline, 1980-1981 ................................... 70 LIST OF ANNEXES Annex A: Selected Policy Changes: December 1977 - March 1980 ..... 73 Annex B: Institutional Issues in Private Sector Finance .... ....... 80 Annex C: Public Investment Outside the Lead Projects, 1980-1984 .... 86 Annex D: The Tea Subsector ........................................ 94 Annex E: The Rubber Subsector ..................................... 104 STATISTICAL APPENDIX ............................................... 117 GLOSSARY .......................................................... 180 VOLUNE II: AGRICULTURAL PRODUCER INCENTIVES  Page 1 of 2 pages COUNTRY DATA - SRI LANKA AREA POPULATION DENSITY 65,607 sq km 14.5 million (mid-1979) 11 221 per sq km (1979) Rate of Growth: 1.7% (from 1970 to 1979) 763 per sq km of agricultural land (1979) POPULATION CHARACTERISTICS (1979) HEALTH (1979) Crude Birth Rate (per '000): 28,3 Population per physician: 6,718 Crude Death Rate (per '000): 6.4 Population per hospital bed: 341 Infant Mortality (per '000 live births): 49 INCOME DISTRIBUTION (1973) DISTRIBUTION OF LAND OWNERSHIP 7. of national income, highest quintile: 45 % owned by top 10% of owners ** lowest quintile: 13 % owned by smallest 10% of owners * ACCESS TO PIPED WATER (1971) ACCESS TO ELECTRICITY (1971) % of population - urban: 77 % of dwellings - urban: 9 rural: 5 rural: 3 NUTRITION (1974-77) EDUCATION (1979) Calorie intake as % of requirements: 91 Adult literacy rate: 85% Per capita protein intake (grams per day): 43 Primary school enrollment: 80% 2/ GNP PER CAPITA in 1978: $190 GROSS DOMESTIC PRODUCT IN 1979 ANNUAL RATE OF GROWTH (