Announcement of Sri Lanka Aid Group Meeting on July 3, 1980

.· FOR i~M"E.DIATE R~-~EASE .. World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. • Telephone: (202) 393-6360 BANK NEWS RELEASE July 3, 1980 SRI LANKA AID GROUP MEETING The following announcement was issued at the World Bank's European offke in Paris. The sixteenth meeting of the Sri Lanka Aid Group was held in Paris on July 1 and 2, 1980 under the chairmanship of the \./orld Bank. The following countries were represented: Australia, Austria, Canada, Denmark, France, the Federal Republic of Germany, Japan, the Netherlands, Norway, Sweden, the United Kingdom, and the United States. Representatives of the International Monetary Fund, the Asian Development Bank, the Commission of the European Communities and the United Nations Development Programme and observers from Belgium, Finland, India, Italy, Switzerland, the International Fund for Agricultural Development, and the Organization for Economic Cooperation and Development also attended. Among those representing Sri Lanka were Mr. Ronnie de Mel, Minister of Finance • and Planning (head of delegation), and Mr. Gamini Dissanayake, Minister of Lands and Land Development and Mahawel i Development. The leader of the Sri Lanka delegation said that the response of the economy in 1978 and 1979 to the "almost revolutionary changes introduced in 1977 11 had justified those changes. The government had not hesitated to take hard and unpopular decisions in the interests of economic development and growth, and it was a tribute to the good sense of the people of Sri Lanka that these changes had been brought about without political or social upheaval. However, the fresh bout of world inflation now threatened the government's plans.. Although the costs of the development program had risen sharply, the government would continue to pro- ceed with its effort, reordering some priorities where necessary, and ensuring the highest priority to quick yielding short gestation projects. The government was also committed to pruning unnecessary expenditures and keeping the overall budgetary deficit within manageable proportions. The policy reforms, the coura- geous domestic resource mobilization efforts, the large investment needs of the economy and the deterioration in terms of trade justified the need for larger international aid flows. Four to five years was a short period in the history of a country, but if the government's program was implemented in thrs period, it would have a dramatic impact on economic growth and standards of 1 iving and re- duce Sri Lanka's dependence on foreign assistance. The donor delegations commended the government on the continued im- provements in the economy and the courageous measures already taken to ensure macro-economic stability. Nevertheless, the rise in construction costs, ac" celerated inflation and widening current deficits were a cause of concern. • These developments, it was noted were in part due to the deterioriation in the internc;itional economic environment, and in ·p-a,t reflected the success of gov- ernment in raising the levels of investment and in moving towards more realistic relative prices. Several participants cautioned against an over-ambitious public investment program which could force a reliance on expensive commercial financing . . . .I  - 2 - The size and content of the public investment program and the phasing of individual projects, it was felt, required careful re-examination. In particular a number of • donors raised questions about the housing and urban development program in view of its impact upon the demand for scarce rea~ and financial resources and emphasized the need to restructure the progra~ ~o as to lower unit costs and to direct benefits primarily towards the poorest. Donor delegations expressed confidence in the gov- ernment1s ability to face these difficult decisions and expressed continued strong support for Sri Lanka's development efforts. The Aid Group also rev!ewed the status of the government's accelerated Mahawel i Development Program. The discussion centered around the implications of the government's Rs 18 bill ion ceiling on the content of the program, particularly in the 1 ight of the sharp increase in the costs of some cf its components. The financing gap that had emerged for the program was reviewed and the importance of financing it on concessional terms was recognized. The donors expressed their continuing confidence in the course and management of the Sri Lankan economy by pledging a continued high level of sup- port for next year. - 0 - • •