Announcement of the World Bank’s 1981 Annual Report Noting Dramatic Resurgence in Sri Lanka’s Economy During 1977-1980

World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.•Telephone: (202) 477-1234 BANK NEWS RELEASE NO. AR 81/22 EMBARGO~ For publication on Monday, September 21, 1981 WORLD BANK REPORT NOTES DRAMATIC RESURGENCE IN SRI LANKA'S ECONOMY DURING 1977-1980 IDA Loans T~tal $167 Million for FY 1981 Following policy reforms launched in 1977, Sri Lanka's economy improved dramatically, according to the World Bank. In its 1981 Annual Report, released today, the Bank states "import liberalization, external assistance and a rat1'ona1- ization of prices led to an upsurge of private and public investment and large increases in production and employment." The Report observes that growth in gross domestic product (GDP) slowed in 1980 to 5.5 percent--due to declines in tree crops, manufacturing, construction and mining--but the figure was still twice the rate recorded during 1970-1977. Paddy production, for example, reached record levels, increasing by more than 10 percent during 1979, and brought the country close to self-sufficiency in rice. The Report notes that a "striking feature" of Sri Lanka's recent growth was "a massive increase in capital formation," with foreign capital accounting for most of the rise in investments. "Private investment increased sharply, with total gross investment increasing from 14 percent of Go·p in 1977 to 35 percent in 1980." Public investment was significant, too, the Report says. Important projects include the Accelerated Mahaweli Program--the multi-purpose project for river basin development--and housing and urban renewal programs. But the Report points out that beginning in 1980, severe pressures on public finances and balance-of-payments, which, in turn, led to a rapid rise in prices, threatened the gains reached in the period since 1977. This deterioration led to a "reassessment supported by the economic and sector work of the Bank, of the government's development program;'' and, the Report adds, a decision was made "to reduce general expenditures and readjust spending priorities. "The central problem was excessive spending on long-gestation or low-yielding projects, coupled with stagnation in export of tree crops." NOTE: Money figures are expressed in U.S. dollar equivalents. I . .•  - 2 - Reversal of this trend, the Report notes, requires "a reform of public finances, including better performance of corporations in the public sector, reeve1uation of the public investment program, improvements in the tree-crop sector, and rectification of the trade deficit by stimulating exports and con- taining imports. 11 • World Bank Lending in Sri Lanka In fiscal year 1981, Sri Lanka received $167 million in credits from the World Bank's soft-loan affiliate, the International Development Association, ( IDA) • * Of this year's lending, the largest share--$153.5 million--was earmarked for agriculture and rural development. This amount tncludes a $90 million credit for development of the Mahaweli river basin, a $33.5 million credit for a second niral development project to benefit 130,000- farm families, and a $30 million credit for an irrigation and drainage project. Another IDA credit, for $13.5 million, was directed to manpower training in transportation. The Region • On the economy of the South Asia region, the World Bank's Annual Report states that the countries enjoyed "an encouraging expa~ion in total output and per capita growth, recovering from the drought-induced declines in 1979." The growth was particularly 11 notable 11 5ince it occurred despite a sharp rise in the price of petroleum products on which the region depends heavily. It says that "during 1979 and 1980, the petroleum-import bill of South Asian countries jumped 80 percent; in these two years, the share of earnings from merchandise exports absorbed by oil imports increased from around 45 percent to 70 percent." The Report points out that favorable weather for most of the region was a key factor in the impressive agricultural performance. Also, government policies, combined with agricultural growth, spurred development in other sectors. It warns, however, that because of a 11 profound deter i orat i c.n i r: balance-of- payments11--caused by a rise in energy prices and world inflation--countries should 11 intensify efforts for reorganizing their economies." Moreover, it ca 11 s on the international community to step up support "to facilitate the necessary process of change that has come to be called structural adjustment." *IDA credits are repayable in 50 years, including a 10-year grace period. They • do not carry interest, but bear a service charge of 3/4 of 1% per annum to cover administrative expenses. I . ...  - 3- IDA PROJECTS APPROVED FOR SRI LANKA IN FY 1981 Agriculture and Rural Development $90 Million IDA Credit for Mahaweli River Basin Development About 28,000 farm families will benefit from the development of some 28,000 hectares in the Mahaweli river basin, including irrigation facilities, the clearing of land, social and managerial infrastructure, and fuel-wood and cashew plantations. Technical assistance is included. Cofinancing is being provided by the Overseas Economic Cooperation Fund ($45 million) and the Kuwait Fund for Arab Economic Development ($45 million). Total cost: $201.8 million. $33.5 Million IDA Credit for Second Rural Development Project About 130,000 farm families will benefit from a second rural develop- ment project for th~ purpose of increasing productivity, employment, and incomes and raising standards of living. Irrigation facilities, agricultural credit, w~ter-supply services, and the development of crop, forestry, livestock, and fisheries are included. Total cost: $50.01 million. $30 Million IDA Credit for Irrigation and Drainage Project Agricultural production and farm incomes will be increased by rehabil- itating some 1,200 village irrigation schemes, strengthening the principal government institutions that are involved in village irrigation, initiating a systematic program of water management, and ~stablishing an evaluation program designed to assist project implementation and the preparation of future village irrigation schemes. Total cost: $43.7 million. $13.5 Million IDA Credit for Manpower Training in Transportatcon To increase the supply of trained manpower and improve the level of technical management expertise in the construction industry, training will be provided to about 45,000 unskilled workers, 9,600 skilled workers, 1,800 mechanical equipment operators, and 1,000 supervisors and managers. Equipment and technical assistance are included. Total cost: $25 million. - 0 -