Sri Lanka: State of the Economy 2005


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The ‘State of the Economy 2005′ report offers an analysis of key indicators of Sri Lanka’s macroeconomic performance as well as developments in the global economy. In the backdrop of the massive human and asset losses resulting from the tsunami of December 26 2004, a slowdown in the pace of reforms and a ballooning oil import bill, Sri Lanka is expected to see a growth rate in the range of 5-5.5 per cent in 2005. The report notes that a weakening of the macroeconomic environment – manifested in a persistent build up of inflationary pressure from mid-2004 – will require that appropriate policies be adopted to confront and resolve growing structural imbalances if the country is to ensure an effective post-tsunami recovery.

The report also reviews Sri Lanka ‘s experience with the tsunami and its aftermath and highlights several short-term as well as longer-term issues that need to be addressed by policy makers. The scaling back of the Rs 5,000 grant for affected households and the new eligibility rules for grant entitlement may need to be reviewed to encourage those affected to re-engage in income earning activities. Additionally, cost escalation in house construction may also require a review of existing schemes if the poorest households are not to fall into a long term debt-poverty trap. Finally, while the concept of buffer zones to achieve coastal environmental protection and minimize the impact of similar natural hazards in future is recognized as having intrinsic merit, the report notes that related issues of livelihood needs, non-discriminatory practices, etc., need to be more carefully examined and thought out before a comprehensive and practicable system can be developed.

In examining emerging medium-term policy issues in Sri Lanka, the report devotes a chapter each in some detail to the following: issues of equity in public education in the country; the pros and cons of private rural agricultural extension as a means of improving productivity and efficiency in the sector; the management of Sri Lanka’s interconnection commitments under the WTO telecommunications services liberalization; the status and constraints of the microfinance sector in Sri Lanka; the significance of the issues and implications of the EU labour GSP concessions to Sri Lanka; the problems facing ‘sick’ and uncompetitive enterprises in the industrial sector and policy options in the restructuring process; and to assess and offer a more relevant policy approach to devolution in Sri Lanka.

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