Sri Lanka - Recent macro-economic developments and adjustment policies

Reort No. 8193CE Sri Lanka Recent Macro-Economic Developments and Adjustment Policies Decenber 18, 1989 Asia Country Department I FOR OFFICIAL USE ONLY Docunn of the World Bank This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authoization.  CURRENCY EQUIVALENTS (Annual Averages) Sri Lanka Rupees per US$1.00 1978 - Rs 15.61 1979 - Rs 15.57 1980 - Rs 16.53 1981 - Rs 19.25 1982 - Rs 20.81 1983 - Rs 23.53 1984 - Rs 25.44 1985 - Rs 27.16 1986 - Rs 28.02 1987 - Rs 29.44 1988 - Rs 31.81 GLOSSARY AND PRINCIPAL ACRONYMS ARC - Administrative Reforms Committee CCP. - Colombo C-.sumer Price Index CFF - Compensatory Finance Facility CTB - Central Transport Board JEDB - Janatha Estates Development Board NFSP - National Food Stamp Program NSB - National Savings Bank PEs - Public Enterprises PMEs - Public Manufacturing Enterprises SAF - Structural Adjuscment Facility SCC - Salaries and Cadres Committee SPC - State Plantation Corporation Fiscal Year January 1 to December 31  FOR OMCIALu USE ONLY TITLE : SRI LANKA - RECENT MACRO-ECONOMIC DEVELOPMENTS AND ADJUSTMENT POLICIES COUNTRY s SRI LANKA REGION : ASIA SECTOR : COUNTRY ECONOMIC REPORT TYPE CLASSIF MMLYY LANGUAGE 8193-CE CEM Restricted 12 89 English UPDATE : 8912 ABSTRACT : This report provides background information on the economy and complements the Policy Framework Paper issued in October 1989. It first reviews recent economic developments and how they were influenced by Sri Lanka's security situation. Next, it comments on the Government's stabilization and adjustment program, the steps which have been taken already as well as those that are to be taken in the near term. Finally, it analyzes the role that aid has had in financing the balance of payments and estimates the aid flows that are necessary in 1990 and beyond to ensure the success of the new Government's economic program. 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.  SRI LANRA: RECENT MACRO-ECONOMIC DEVELOPMENTS AND ADJUSTMENT POLICIES Table of Contents Page No. FOREWORD EXECUTIVE SUMMARY i I. RECENT ECONOMIC DEVELOPMENTS ......................1.......... 1 Growth Performance .... ........................................... 1 Fiscal Developments in 1988 and 1989 ......................... 6 The 1989 Budget ............................................... 9 Monetary and Price Developments ...... ......................... 11 Balance of Payments Developments ...... ............... 13 II. THE FORMULATION OF THE 1989-92 ECONOMIC PROGRAM .... ........... 16 The July Stabilization Program ...... .......................... 16 The Structural Reforms ..... ... .............. . ................. 17 III. MEDIUM TERM PROJECTIONS AND AID REQUIREMENTS FOR 1989-92 ...... 22 Balance of Payments Projections ................ .. ............. 22 The Role of Aid ............. . 24 Project Implementation and Disbursements Profiles ........... .. 25 Aid Requirements . .............................................. 28 STATISTICAL APPENDIX ............................................... 31  TEXT TABLES Page No. Table 1 Growth Performance, 1970-88 .................. 2 Table 2 Impact of Civil Disturbances on Economic Performance: Selected Indicators - 1982-88 .... ....................... 4 Table 3 Summary of Central Government Operations, 1984-1989 .... 5 Table 4 Major Sources of Over-Expenditure in 1988 .. .............. 6 Table 5 Major Sources of Deviations from Revenue Estimates in 1988 ................................................. 7 Table 6 Monetary and Price Developments, 1984-1989 ............... 12 Table 7 Balance of Payments Summary, 1980-1988 ........ ........... 14 Table 8 Debt Indicators, 1978-88 ....... .......................... 15 Table 9 Sri Lanka's Living Standards Relative to Low-and Middle-Income Countries ............... .................. 18 Table 10 Medium Term Balance of Payments, 1988-92 ....... .......... 23 Table 11 Export Performance Indicators, 1979-92 ........ ........... 24 Table 12 Role of Aid Flows in Financing the Current Account ....... 25 Table 13 Sectoral Composition of Aid Disbursements ...... .......... 26 Table 14 External Finance Requirements, 1988-92 ........ ........... 27 Table 15 Composition of Aid Commitments ............ ............... 29 Table 16 Summary of Aid Commitments and Disbursements, 1982-92 .... 30 This report was originally prepared for the participants of the October 17, 1989, Sri Lanka Aid Group Meeting. The report is based on information gathered during a World Bank economic mission that visited Sri Lanka in January- February 1989 consisting of Messrs. R. Zagha (Chief of Mission); Aggarwal (public sector reforms); Berthelot (public enterprise reform); Bradfield (transportation); Maxwell (trade policies); Bowen, Consultant (employment); van Dijck, Consultant (poverty); Teja, IMF (macro-economic developments); and Wickramasekara, Consultant (employment). Mr. Shishido prepared the section on Aid Requirements. The report is also based on information gathered during several subsequent joint IMF/World Bank missions.  r 1 2 CQUNIRY DATA - SRI LANKA /J"l RCItIL^TSON !/ ~~~~~DENSITY ZU4SSOS eq. km S11 elIt ion (oId-l9S0) 24kmper sq k (1986) Rate Of Growth: 1.63 (frm 1970-190S) 76 per eq. km e gricultural land (1979) Cr.rudei roe ae" ~pa 20.2 POLOaton per yelns 8,9e9 CrwF Death Rau p r ' 0.1 Population per respital bed: 360 intent Morta lty per '000 live births) S0.00/ MIICOIIE OSS I (1981/62) DISTRIIUTION OF LAND OWERSNIP (1978) S ef n eien In"cea, higheat quint) lo: So 6 oWend by top 105 et owners: U of national ince , lowest quintils: 4 X owned by sml lest 10 of oners: - ACCESS TO PIPED WATER (1980) ACCESS TO ELECTRICITY (1981) 5 of populssion - urban: 47 of popula non - urban: 40 X of population - rural: 40 3 of population - rural: n.e. INtUITION (1986) EDUCATION (1981) Calorle Intake: 2,400 Adultlltracy rote: 87% Per capita protein Intake (graw/day): 48 Primary school enrollment S8X OW PER CAPITA IN 1987: US$400 d/ WOTPUT IN 196B BY SECTOR dANNUAL RATE OF GROWTH (X, constant prices) Value Added SIll T St S 1970-77 1977-98 1987-98 Agriculture 1,08 20 2.8 8.9 -1.9 Industry P 1,629 25 1.7 6.2 6.8 Services a O85 49 .7 6.08 2.4 Totel / 0,0 IN iT E l ROSS DOMESTIC PRODUCT IN 198 USS Million x GOP at Market Prices 7,018 100 Investment 10616 28 Gross National Savings 1,008 14 Current Account Oefit 610 9 Exports of Coods and NFS 1,795 26 Imports of Goode and NFS 2,617 90 GOVERNMT FINANCE Central covern"ent (Re Million) X of MrP at Mrkat Prices lse 195 1984 1938 Revenue 9/ 41,749 17.2 22.1 18.7 Current k penditure h/ 40,132 18.8 17.2 20.7 Current Surplus -4,J88 -1.1 4.9 -2.0 Capital Expenditure l 80,898 7.8 18.6 18.6 External Assistance (net) 18,678 8.2 6.4 0.1 A Rglstrsr OGneral's Department. Prowlsional I World Bank Atlas estlmte. V Manutecaturing, mining and construction. GOP at faeter cost. / Includes capital revenue. hIncludos edvance accounts. Includes net lnding.  Pago 2 of 2 COUNTRY DATA - SRI LANKA MONEY. CREDIT AND PRzCES 1980 1961 1082 198J 1084 1986 1986 1987 1988 (d of Triod) - --------- --e- -.---_-______ Money and quasi-Money 19,709 24,287 80,249 86,818 41.898 47,067 49,688 66,682 60,024 Bank Credit to Public Sector 9,100 12,889 17,286 17,689 13,847 25,423 27,884 84,289 46,708 Bank Credit to Private Sector 16,088 20,768 24,9$4 81,456 80,831 84 106 38,605 41,002 49,932 ----- --------