Sri Lanka - Current economic situation and outlook

Report No. 6176-CE Sri Lanka: Current Economic Situation and Outlook May 13,1986 South Asia Programs Department 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 officidl duties. Its contents may not otherwise be disclosed without World Bank authorization.  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 GLOSSARY AND PRINCIPAL ACRONYMS CTB - Ceylon Transport Board EDB - Export Development Board IPC - Industrial Policy Committee JEDB - Janatha Estates Development Board Maha - Northeast monsoon, October-February M&LT - Medium and Long Term MISA - Ministry of Industry and Scientific Affairs PTC - Presidential Tariff Commission SLAS - Sri Lanka Administrative Service SLIDA - Sri Lanka Institute of Development Administration SPC - State Plantations Corporation Yala - Southwest monsoon, May-September This report is based on the findings of an economic mission which visited Sri Lanka during March 1986. The mission comprised Messrs. Rene Vandendries (Chief of Mission), Andrew Feltenstein, Tom Gibson, and Roberto Zagha. The sections on Public Administration were prepared by Mr. Geoff Lamb and Sir Fred Atkinson (consultant), who visited Sri Lanka separately. Ms. Geri Wise provided statistical support.  FOR OMCIAL USE ONLY TITLE : SRI LANKA: CURRENT ECONOMIC SITUATION AND OUTLOOK COUNTRY : SRI LANKA REGION : SOUTH ASIA SECTOR : COUNTRY ECONOMIC REPORT TYPE CLASSIF MM/YY LANGUAGES 6176-CE CEM Restricted 05 86 English PUBDATE : 8605 ABSTRACT : The report highlights both the achievements and structural weaknesses in the Sri Lankan economy. It notes that the economy continued to grow at a satisfactory rate during 1985 primarily as a result of a rapid increase in rice production. At the same time there was a significant deterioration in both the budget and the balance of payments. Good growth accompanied by sizeable deficits in the budget and in the current account of the balance of payments has been a feature of the Sri Lankan economy for some time. The external financing of the deficits and the poor growth of exports has led to a considerable rise in the debt service ratio. The report stresses particularly the difficulties in keeping public spending under control and the distortions in the incentives for production and trade. It cautions against the possible adverse consequences for the balance of payments and future economic growth of continuing deterioration in the fiscal accounts or a weakening in the efforts to strengthen the incentives framework. This document has a sticted distribution and may be used by reipients only in the potforme of thek omcial duties. Its contents may not otherwise be disclsed without World Bank authofization.  SRI LANKA: CURRENT ECONOMIC SITUATION AND OUTLOOK Table of Contents Page No. Country Data SUMMARY AND CONCLUSIONS I. AN ASSESSMENT OF DEVELOPMENT OBJECTIVES AND PERFORMANCE ...... 1 A. Introduction ..........I................................ ... 1 B. Liberalization in 1977: Its Objectives, Policies, Achievements, and Shortcomings ......................... 2 C. Developments during 1985 ............. .................... 5 D. Major Policy Issues ...................................... 9 Exchange Rate and Trade Policies ....................... 9 Tariffs ............. ................................... 11 Public Enterprises .. ................................... 13 II. PUBLIC FINANCE AND PUBLIC ADMINISTRATION ........ ...... 15 A. Introduction ................ ............................. 15 B. Public Finance ....... .................................... 16 Fiscal Performance in 1985 ............................. 16 The 1986 Budget ...... .................................. 17 C*. Public Administration *......... ....... ..... 19 III. BALANCE OF PAYMENTS OUTLOOK AND AID REQUIREMENTS ............. 23 A. Background ............................................ 23 B. The Current Account of the Balance of Payments, 1986-88 .. 26 C. Aid Requirements, 1986-88 ................................ 27 Annex I: Selected Aspects of Administrative Reform ............... 29 STATISTICAL APPENDIX ................... ...........*.*. 35 MAP  -ii- Page No. LIST OF TABLES IN THE TEXT Table 1: Annual Real Growth Rates of GDP and Selected Sectors, 1978-85 3....... ........................... . 3 Table 2: Selected Economic Indicators, 1978-85 ................... 5 Table 3: Balance of Payments Data, 1978-85 ........ ............... 7 Table 4: Evolution of the Real Exchange Rate, 1979-85 ............ 10 Table 5: Summary of Budgetary Operations, 1983-86 ................ 18 Table 6: Sri Lanka Debt Service, 1985-88 ...................... 25 Table 7: Disbursements, 1985-88 .................................. 27 Table 8: Balance of Payments Projections, 1985-88 ................ 28  Page 1 of 2 pages 8RI LAIIA - CO"NTRY DApT muEA POPULATION Al DENSITY 65,607 sq km 15.6 million (mid-1984) 235 per sq km (1981) Rate of Growtb: 1.72 (from 1971 to 1981) 763 per sq km of agricultural land (1979) POPULATION COAMCTERISTIC8 (1983) bl VHj41& (1984) / Crude Birth Rate (per '000): 26.2 Population per physician: 8,969 Crude Deatb Rate (per '000): 6.1 Population per flospitel Bed: 350 Infant Mortality (per -000 live births): 30.0