Announcement of Sri Lanka's Economic Prospects Improve Highlights of World Bank Activities in Fiscal 1979

. . .HOLD FOR RELEASE I , eWorldBank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.• Telephone: (202) 47i ·1234 For Publication Monday, September 24, 1979 SRI LANKA'S ECONOMIC PROSPECTS IMPROVE Highlights of World Bank Activiti~s in Fiscal 1979 Sri Lanka Receives $68 Million Sri Lanka received $68 mill ion from the International Develop- ment Association (IDA), an affiliate of the World Bank, during the fiscal year ended June 30, 1979, according to the Annual Report of the World Bank released here today. The year's lending to Sri Lanka was $34.5 million more than the previous year's lending of $33.5 mill ion. THe-Association's credits are for 50 years, free of interest, • but carry a service charge of 3/4 of 1% . Sri Lanka's Economy Improves The Report says: "For Sri Lanka's economy, prospects have improved. The country benefited, in both calendar 1977 and 1978, from f2.vorable monsoons which, after two years of serious drought, contributed to record paddy crops. Moreover, important policy reforms have been initiated since mid-i977 that have already begun to improve the economy's health. These measures include a unification of the exchange rate, the liberalization of import 1 icensing and exchange controls, policy-induced increases in prices of essential commodities and services, including the procurement price of paddy, and the initiation of a range of new produc- tive projects." According to the Report, Sri Lanka's GDP growth in real terms in calendar 1978 was over 7%, up from 4% in 1977. Rice production in 1978 reached an all-time high of 1 .2 million tons, due to favorable weather, better production incentives, and improved availability of inputs, espe- cially fertilizer. The tree crop sector (especially tea, plus rubber and coconut), which comprises 70% of merchandise exports and accounts for 45% of tax revenues, did not share in the expansion, as it continued to suffer from past neglect, including adequate replacement of averaged trees, and management problems in the predominantly public sector. Industry is showing a strong response to the economic reforms, however. Heavy re~ • placement investments and inventory replenishments were made in 1978, NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - and considerable expansion of capacity is beginning to take place as well. • These factors contributed to a large increase in imports in 1978, but con- tinued good prices for exports and a strong response to the pol icy reforms by aid donors have kept the overall balance of payments in surplus. Infla- tion was a relatively high 14%, due largeiy to one-time effects of the pol icy reforms. The Bank Report says that the country's foremost economic chal- langes are to reduce high unemployment, to lessen the dependence upon tree crop exports, and to restore ·iong-ternr economic growth. To help achieve these goals, the government intends to increase investments significantly during the next five years. Public sector investment is to center around three major development schemes. The largest scheme, the accelerated im- plementation of the Mahaweli Ganga development program, is aimed at har- nessing the island's substantial irrigation and power potential. Government assessments indicate that additional benefits to the economy made possible by the project's first phase, completed in 1978, have already covered the project's capital costs. The other two major projects are the institution of a free-trade zone for industry, and a major new housing and urban develop- ment program. The following is a brief description of projects financed by IDA: $20 Mill ion Credit for Integrated Rural Development Some 170,000 farm families in Kurunegala district will benefit • through the rehabilitation of existing irrigation scheme~ and from stepped- u~ programs ~f replanting and intercropping of smallholder coconut planta- tions .. ~red!t and transport facilities will be improved, as well as rural electr1f1cat1on, health care, educational facilities, and drinkir.g water supplies located in remote areas. Total cost: $30 mill ion. · $15.5 Mill ion Credit for Agricultural Extension and Research . As ma?y as 1.4 million farm families wi~l benefit from a project that will help introduce a "training and visit" e;,~te•.sion system throughout the country. In addition, adaptive research will be strengthened. and the t~ai~ing of extension officers improved and expanded. Total cost; $22.4 m1 11 1 on. $16 Mill ion Credit for Small and Medium Industries Credit will be made available to small and medium-sized manufac- turing ~nd servic~ industries. Technical service agencies will be upgraded to provide promotion, technical, marketing, and management services to assist such firm to expand and improve productivity and thereby generate employ- 7 ment and 11,crease exports. Total cost: $27.9million. ... / •  - 3 - • $16.5 Million Credit for Road Maintenance Through a project designed to arrest the deterioration of the country's road system by a program of enhanced routine and periodic maintenance and execution of future works, the transport of goods and passengers will be facilitated, and road transport costs reduced. Total cost: $28.75 mill ion. South Asia - Favorable Economic Trends Commenting on the economic situation in South Asia, the Oank Report said: 11 1n lc:irge parts of South Asia, economic trends v-1ere favorable in fiscal 1979. The improvement in economic conditions in much of the region, India in particular, has nm-v continued since fiscal 1976. The gains in output of agriculture, stil 1 the most important sector by far, were the result of a combination of generally favorable \,1eat:her and -- to an extent as yet difficult to quantify -- of structural improvements, such as irriga- tion and extension, that have raised basic production levels." According to the Report, continued expansion of industry ~nd exports and rapidly rising workers' remittances fro;n abroad have, in additfon, contributed to more abundant resources, including substantial increases in reserves of food and foreign exch~nge. Consequently, it has been possible to divert attention from short-term problems and to focus • increasingly on r.iore fundamental issues. These brnad findings, of course, need qualification in the 1 ight of differing trends in in~ividual countries . Recent improvements should not obscure tha fact that South Asia, the world's most populous region, continues to face massive development problems. Des- pite notable achievements over the past 30 years throughout most of the region, per capita incomes have risen only modestly because of rapid popu- lation growth. The region today is still coping with massive and extreme poverty; at least 350 mill ion people, of whom some 250 mil 1 ion live in India alone, continue to be deprived of minimum necessities in terms of nutrition, unpolluted water, clothing and shelter.'' - 0 - •