OCTOBER 2016 SRI LANKA Country Snapshot The World Bank Group Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Execu- tive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without per- mission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978- 750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202- 522-2422, e-mail pubrights@worldbank.org. Photos credits: World Bank Photo Library Cover Design and Text layout: Duina Reyes COUNTRY SNAPSHOT Sri Lanka is in many respects a development suc- tural employment from its present share cess story. With economic growth averaging over 6 percent in the past decade, Sri Lanka has made of a third of the population. Although Sri Lanka notable strides toward the goals of ending ex- has excelled in overcoming human development treme poverty and promoting shared prosperity. challenges typical to a low-income country, its Important challenges lie ahead, however, as Sri service delivery systems in education, health, Lanka aspires to become a higher middle-income and other areas must now adjust to face new and country (MIC). Growth in the last five years is in changing demands typical of a MIC. Pressure to substantial part due to a “peace dividend” that improve social safety nets will increase owing to included significant reconstruction efforts since an aging population., Increasing affluence and the end of the 25-year civil war in 2009. Going information will lead to higher expectations for forward, economic growth will likely require the state to perform in order to facilitate growth, continued structural changes in the economy provide a higher level of services, and demon- towards greater diversification and productivity strate increasing responsiveness to a more de- increases and a reduction in the role of agricul- manding citizenry. ECONOMIC OVERVIEW ed a challenging external landscape despite low oil prices and increased tourism. Domestically, a large fiscal deficit and an accommodative monetary pol- SRI LANKA icy led to an increase in consumption and non-oil imports. Although swap facilities from India and 2015 new Eurobonds partially negated resultant balance Population, million(1) 21.0 of payments pressures, the external buffers dete- GDP, current US$ billion(2) 82.3 riorated and the currency depreciated by 10 per- GDP per capita, current US$(2)(3) 3,924 cent against the US dollar. Public debt increased on account of high primary deficit, currency deprecia- GDP per capita (USD PPP)(3)(4)(5) 9,834 tion and rising real interest rates. Sources: Central Bank of Sri Lanka, DCS (1) 2015, (2) 2015, (3) Staff estimates, (4) Based on national accounts data before recent revision, (5) 2014. Authorities took policy measures to arrest the situ- ation in 2016. After passing the budget for 2016, Sri Lanka is faced with a challenging macroeconom- which had a deficit target of 5.9 percent of GDP, a ic environment characterized by high fiscal deficit, fresh set of proposals on income tax and Value Add- elevated public debt; and relatively weak external ed Tax (VAT) were passed by the Cabinet in order to buffers. Recent policy measures along with the IMF reduce the deficit to 5.4 percent of GDP. Monetary supported program are expected to restore macro- policy was tightened in the first quarter, which was economic stability in the short-run. However, it is im- followed by a rate hike in July to tame the stubborn- perative to expedite high priority structural reforms ly high credit growth and rising inflation. to raise competitiveness, improve governance and The policy measures were followed by a new In- consolidate fiscal situation in order to ensure sus- ternational Monetary Fund (IMF) program. The tained growth and development. 36-month Extended Fund Facility (EFF) for about USD 1.5 billion is aiming to offer a policy anchor for RECENT DEVELOPMENTS macroeconomic stability and structural reforms. Complementing the EFF, the World Bank approved Sri Lanka’s macroeconomic performance deterio- a USD 100 million Development Policy Financ- rated in 2015. Net outflows from the government ing (DPF) operation, supporting the government securities market and sluggish FDI inflows present- to carry out reforms related to competitiveness, Sri Lanka Country Snapshot 1 2006/07 and 2012/13, and Percentage Points Contributions to GDP growth improved living standards were reflected in rising as- 9 set ownership, declining 7 shares of food consump- tion, and a rise in household 5 per capita income among 3 the poor.  In the past year, 1 employment in agriculture continued to fall, boosting -1 productivity while unem- 2011 2012 2013 2014 2015 Agriculture Construction Other industry ployment fell from 4.7 to 4.2 Services Net taxes GDP growth percent between Q1 2015 and 2016. However, female Source: Department of Census and Statistics, World Bank staff labor force participation re- mains low and stagnant at 36.3 percent. Recent floods transparency and public sector and fiscal manage- mostly impacted regions that were less poor than ment. average. In the first quarter 2016, the economy grew by 5.5 percent, year-on-year, with main contributions OUTLOOK from industry and service sectors. The year-on- year inflation in the Colombo Consumer Price In- Monetary tightening and enhanced currency flex- dex jumped to 4.0 percent in August while core in- ibility have contributed to improving short-term flation, computed excluding fresh food and energy, stability. The IMF program will add to the confi- remained high at 4.1 percent. The increase reflects dence while supporting fiscal sustainability. Struc- tural reforms supported by the DPF will yield ben- the impact of base effect, floods in the month of May efits in the medium term. and underlying demand pressures amid high credit growth. The fiscal deficit in the first five months Growth is expected to remain unchanged in 2016 marginally improved on account of increased tax and grow marginally over 5.0 percent beyond, collection. However, a Supreme Court ruling halted driven by private consumption and postponed For- the implementation of new VAT proposals in July, eign Direct Investment (FDI) in 2015. The reduced one month after they were introduced. The exter- drag from imports on low commodity prices along nal current account improved in the first quarter with recent policy measures will contribute to the thanks to a reduced oil bill and increased tourism. increase in growth. The impact of past currency Although FDI continued to underperform, net in- depreciation and the increase of the VAT rate will flows to the government securities market have increase inflation in 2016 and 2017 despite down- turned positive since April. Gross official reserves, ward pressure from low international commodity which deteriorated in the first half due to debt re- prices. The external current account is projected payment and currency defense, received a boost in to improve in 2016 with reduced imports and in- July with the issuance of new Eurobonds. However, creased tourism. The fiscal deficit is projected at the reserve cover in months of imports at 3.5 still 5.7 percent of GDP for 2016 after considering de- remains below the end-2015 level of 3.8. lays in implementation of revenue measures. Extreme poverty remains low, as the $1.90 (PPP The immediate challenge is to increase 2016 rev- 2011) poverty rate fell half a percentage points, enue amid legal obstacles on VAT. Structural chal- from 2.4 to 1.9 percent between 2009/10 and lenges include increasing fiscal revenue in the 2012/13. The share of the population living on less medium term to meet the requirements of a mid- than $3.10 per day also fell from 16.8 to 14.0 per- dle income country; and narrowing a persistent cent. The real per capita consumption of the bottom current account deficit linked to structural com- 40 percent increased 2.2 percent annually between petitiveness issues. With the country approaching 2 2014 2015 [2016p] [2017p] [2018p] [2019p] GDP (LKR million, current) 10,448 11,183 12,232 13,419 14,757 16,262 GDP per capita (US$, current) 3,853 3,924 3,970 4,209 4,475 4,769 Real GDP growth (percent) 4.9 4.8 4.8 5.0 5.1 5.1 Unemployment rate (percent) 4.3 5.0 … … … … Colombo Consumer CPI inflation (percent, annual average) 3.3 0.9 4.0 4.5 4.7 4.7 Relative to GDP (%) unless otherwise indicated Total revenue and grants 11.5 13.1 12.8 13.7 14.0 14.1 Total expenditure and net lending 17.2 20.5 18.5 18.4 18.3 18.3 Fiscal balance -5.7 -7.4 -5.7 -4.6 -4.4 -4.2 Public debt 70.7 76.0 76.1 74.9 73.4 71.7 Treasury guarantees 5.4 5.4 … … … … Current account -2.5 -2.4 -0.6 -1.4 -2.1 -2.6 Exports 13.9 12.8 12.4 12.3 12.2 12.1 Imports 24.3 23.0 21.2 21.7 21.8 21.9 Foreign Direct Investment 1.0 0.8 0.8 1.6 1.8 1.7 Gross official reserves (months of imports) 4.3 3.8 4.1 … … … Exchange rate (LKR/US dollar, end of year) 131.1 144.1 … … … … Source: CBSL, MoF, staff projections. Notes: f = forecast [Projections as of June 2016, subject to change] upper middle income status, borrowing terms are revenue remains small. Ongoing reforms to imple- becoming more commercial, affecting affordability. ment criteria to select beneficiaries of Samurdhi, the main cash transfer program for the poor, will Finally, with limited national savings compared be crucial to assist the poor and maintain political to national investment, more FDI is needed into support for reforms. manufacturing and export sectors to sustain a high growth path. Key risks include a growth slowdown, The World Bank has been helping the govern- which would lead to fast rising public debt. While ment assess the composition of its public ex- the direct impact of a slowdown in China and the penditures as it looks to align its spending Brexit would be limited, continued economic woes with the needs of a middle-income country and in the Middle East, the EU and Russia could ad- improve the efficiency with which it uses pub- versely affect exports and remittances. Tightening lic resources for service delivery, particularly global financial conditions could elevate capital in the education and health sectors. A Public outflows and make borrowing more expensive. In Expenditure Review completed in June 2014 has particular, external liquidity risks will rise when provided an analytical basis for the government to USD 8.1 billion worth of Eurobonds start to mature use public resources more effectively and in ways between 2019 and 2026. that promote economic growth and reduce pover- ty. World Bank analytic and advisory activities also It is important that fiscal consolidation is designed have been outlining alternative financing arrange- to minimize the impact on the poor. Removing VAT ments for public infrastructure and services (in- exemptions, which tend to disproportionately ben- cluding public-private partnerships) and the pros efit wealthier households, would constitute a posi- and cons of the various options. The experiences of tive first step. However, personal income tax and other middle-income countries have informed this transfer spending are much more progressive than exercise. VAT. A recent assessment of the distributional im- pact found that the fiscal policy has become more The World Bank has also been supporting progressive since 2009, largely because of an in- government efforts to enhance the country’s crease in direct transfers, but personal income tax public financial management systems. Initia- Sri Lanka Country Snapshot 3 tives the World Bank has supported include: (i) ing decade. Authorities have identified the need to strengthening the Auditor General’s Department strengthen competitiveness not only in traditional by introducing modern audit practices in finan- sectors such as apparel, natural resources transfor- cial, performance and investigative audits as well mation, and tourism but also to establish the nec- as institutional changes to sustain these initiatives; essary conditions for a thriving knowledge-based (ii) introducing public-sector accounting standards economy, the integration of productive local com- aligned with international standards to public-sec- panies in global value chains, and the attainment of tor institutions; and (iii) preliminary work to pro- higher value addition in the manufacturing sector. fessionalize public-sector accountants. The World Sri Lanka benefits from significant resources Bank carried out a review of the country’s public and comparative advantages, which can be the financial management systems using the Public Ex- basis for enhanced competitiveness. Sri Lanka’s penditure and Financial Accountability methodol- geographic location positions the country close ogy, helping to identify strategic areas for improve- to large and growing Asian markets. The country ment. Among the areas identified for strengthening benefits from natural resources that can be further were: monitoring and reduction of payment ar- leveraged in a sustainable way as a source of more rears; oversight of aggregate fiscal risk; public and better jobs, for example in fisheries and tour- access to key fiscal information; taxpayer regis- ism. Success stories demonstrate the ability of Sri tration and tax collection; internal auditing; and Lankan firms to compete in international markets. procurement procedures and predictability in the availability of funds. An Institutional Development However a wide range of factors constrain the Fund grant to strengthen the Institute of Chartered competitiveness of Sri Lankan enterprises. In- Accountants provided an important opportunity vestment climate shortcomings increase the cost to build capacity in the private sector with a view of doing business and reduce the capacity of the to improving private-sector transparency and ac- country to attract and retain investment. Regulato- countability. Additional World Bank assistance, to ry obstacles increase the cost of trade, while short- be provided on a “just-in-time” basis, will support comings in business regulations create incentives government efforts to further strengthen public for informality. Most private sector firms are micro financial management and corporate financial re- enterprises with low productivity and limited ca- porting. pacity to join value chains. RECENT SECTOR The WBG is collaborating closely with the GoSL in addressing the obstacles hampering the cre- DEVELOPMENTS ation of new enterprises and the growth of ex- isting ones. The collaboration covers three main areas. First, assistance to enhance Sri Lanka’s abil- Trade and Competitiveness ity to attract and retain Foreign Direct Investment as a way to attract new technologies and produc- tion processes and facilitate the introduction to The GoSL has recognized the need to adopt a global value chains; second, enhancement of the policy agenda that strengthens the competitive- investment climate through the elimination of un- ness of the country’s private sector to achieve necessary regulatory obstacles to entrepreneur- inclusive and sustainable growth. Recent gov- ship and trade; third, reformulation of trade poli- ernment vision statements have identified the cies to foster an outward orientation in Sri Lankan need for a revision of trade and investment poli- producers; The WBG is also, fostering entrepre- cies coupled with reforms that promote innova- neurship and innovation through adoption of new tion, entrepreneurship and skills formation to help technologies and production processes by SMEs. propel Sri Lanka to upper-middle-income status. The Government’s vision recognizes that while the To help the country improve its overall com- economy has grown rapidly in the last decade, the petitiveness, the World Bank is providing de- dominance of non-tradable sectors as drivers of velopment policy financing for Competitive- economic growth is unlikely to remain adequate ness, Transparency, and Fiscal Sustainability. In for inclusive and sustainable growth in the com- July 2016, the Bank approved financing support to 4 help the Government’s reform agenda in providing law is inadequate for Sri Lanka to build a vibrant a more stable macroeconomic and policy environ- capital market as there are no legal provisions to ment that is critical to strengthening the country’s facilitate the demutualization of the stock exchange competitiveness. Particular focus is on establish- or its modernization in terms of governance, posi- ing more transparent and well-managed public tioning and market infrastructure. Addressing gaps institutions, and improving fiscal sustainability in the legal and regulatory framework, particularly – factors that are constraining private sector com- for the capital markets, also will require building petitiveness. the capacity of supervisors and regulators, as well as market participants. As Sri Lanka looks to deep- Financial Sector en and diversify its financial sector it will be impor- tant to maintain a balance between financial de- Sri Lanka’s financial sector is small relative to velopment and financial stability. The World Bank emerging market peers. Limited in both scope has provided technical inputs to help policymak- and depth, the country’s financial sector is neither ers build a capital market development strategy, a major source of funding nor a significant vehicle including improvements to the legal framework, fi- for long-term investment and savings. Sri Lankan nancial infrastructure, and product diversification. companies have been funding their operations and Access to finance is a major constraint in both expansion primarily from retained earnings. There urban and rural areas for corporate as well as has been little change in the structural composition small- and medium-sized enterprises (SMEs). of the financial system since 2007. Banks dominate SMEs in Sri Lanka were severely affected by the the financial sector, accounting for around two- credit crunch arising from the global financial crisis thirds of the sector’s assets, and have enhanced and the country’s protracted civil conflict. Despite its resilience to shocks. Contractual Savings insti- declining interest rates and improved liquidity in tutions such as provident funds hold around 15.5 the financial sector since 2010, access to finance percent of financial-sector assets, with insurance for SMEs continues to remain significantly con- companies, finance companies, and leasing com- strained. Non-performing assets in the SME sector panies each accounting for around 10.6 percent of are above the industry average. There is a need to financial-sector assets. Sri Lanka’s equity market ensure that SMEs have sufficient capacity to effec- - at Rs. 2.9 trillion ($20.1 billion equivalent) in De- tively utilize bank loans for the growth of their busi- cember 2015, accounted for about 26.3 percent of ness. Areas that are particularly constraining SMEs’ gross domestic product with further potential for access to banking include record keeping and ac- growth. While the government bond market has counts, financial management, human resources, grown, the corporate bond market remains unde- marketing, lack of innovation, and product quality. veloped. The Central Bank initiated a consolidation process State Owned Financial Institutions (SOFIs) have of the banking and non-bank financial institution a major influence on the financial sector. SOFIs sectors, aiming to strengthen their regulatory envi- dominate the banking and insurance sectors. How- ronment, improve the stability of the financial sys- ever, government ownership has not translated tem, and increase access to finance. The consolida- into enhanced financial inclusion, access to finance tion process is ongoing on a voluntary basis, with for SMEs or financial innovation. some mergers approved by the Central Bank. The Securities Exchange Commission of Sri Microfinance institutions have played a major Lanka (SEC) has taken active steps to strength- role in broadening financial inclusion but the en the legal and regulatory framework for the sector has major shortcomings. It is estimated capital market and align it with international that there are more than one thousand microfi- standards and best practices.1 The current SEC nance institutions in the country. Most of them remain unsupervised and thus, while they are deemed to serve an estimated 10 million people, their adequacy and sustainability and the fairness 1  Technical assistance has been provided through the World Bank’s Financial Sector Reform and Strengthening of their practices may not be at par with good inter- (FIRST) initiative. national practices. With the recent passage of the Sri Lanka Country Snapshot 5 Microfinance Law2, deposit-taking microfinance overall.4 Growth became markedly less pro-poor institutions will also be supervised by the Central between 2009/10 and 2012/13, however, as in- Bank, thus strengthening the legal and regulatory equality, measured by the Gini coefficient for per framework governing the sector in order to en- capita expenditure, rose from 0.36 to 0.39. Among hance its effectiveness, fairness and sustainability. rural, urban, and estate sectors, poverty reduction This is a positive step, but it will pose significant has been particularly dramatic in the estate sec- challenges on the institutional capacity of regula- tor, which is largely a legacy of the tea, rubber and tory agencies. coconut plantations established during the British colonial era, although poverty in that sector re- The World Bank Group has been actively sup- mains at 11 percent.5 porting efforts to increase access to finance for SMEs and for the poor. The World Bank carried Despite the very positive story of poverty reduc- out a development Financial Sector Assessment tion and shared prosperity, important develop- Program (FSAP) at the request of the government, ment challenges remain in Sri Lanka. Pockets of offering recommendations to address identified severe poverty continue to exist, specifically in the constraints. The FSAP provided a number of rec- districts of Mullaitivu, Mannar (both in the North- ommendations to enhance the ability of the finan- ern Province), and Moneragala (in Uva Province), cial sector to respond to the needs of enterprises where headcount poverty rates exceed 20 percent. and the population at large. At the request of the Spending on social assistance has declined in re- Government the WBG collaborates with financial cent years (from 4 percent of GDP in 2004 to 2.5 authorities on implementing the FSAP’s recom- percent in 2012) and suffers from inefficient tar- mendations through a program that ultimately geting. In the estate sector, alternative welfare indi- aims at enhancing financial inclusion and financial cators, such as asset ownership, educational attain- sector efficiency. In addition, IFC has assisted the ment, and the share of food consumption devoted government in drafting a revised Secured Trans- to protein, continue to lag, and many residents re- actions Act for Sri Lanka which is expected to im- main near-poor. The decline in the country’s main safety net program, Samurdhi, is estimated to have prove lending practices in the country, improving slowed poverty reduction by one and a half per- access loans and other forms of financing using centage points between 2002 and 2012/13. In movable assets as collateral for up to 37,000 micro 2012/13, an estimated 6.5 percent of the popula- and small businesses. tion were not classified as poor, but live within 20 percent of the poverty line and were therefore vul- Poverty and Shared Prosperity nerable to shocks that could cause them to fall back into poverty. It is also important to consider other Sri Lanka’s headcount poverty rate has declined related challenges, such as high rates of malnutri- dramatically, falling from 23 percent in 2002 to tion, which have persisted even as the population 7 percent in 2012/13.3 This impressive perfor- has become wealthier. mance has largely been driven by an increase in labor income, which was supported by four benefi- Gender inclusion remains central to shared cial trends: a gradual structural transformation out prosperity. Closing gender gaps is not only impor- of agricultural employment; increased urbaniza- tant in terms of social inclusion, but is critical in tion and agglomeration associated with the growth terms of the broader challenge of raising competi- of key urban centers; a rise in international prices tiveness and ensuring shared prosperity, particu- for food and tea; and strong domestic aggregate demand. Growth has generally been pro-poor. Real per capita consumption of the bottom 40 percent 4  More recent data on shared prosperity will become avail- grew between 2006 and 2012/13 by an average able soon. of 2.2 percent annually, while it grew 1.7 percent 5  Sri Lanka is divided into three geographic areas – urban, rural, and ‘estates’. The estates were originally plantations set up during the colonial period as enclaves with most of the la- bor as well as capital imported. Since independence, the rigid distinction between the estates and the rest of the country has 2  Microfinance Act, No. 6 of 2016 passed on May 20, 2016. reduced, though they continue to be disadvantaged relative to 3  These numbers are based on the national poverty line. the rest of the country. 6 larly given that an aging population will increase tions through more efficient, better-targeted social the dependency rate. Women made up 53 percent assistance spending. of the working-age population in 2012, but only 34 percent of the employed population, a figure that From the private sector perspective, IFC is work- has remained static for decades. Women are less ing to develop North and East of Sri Lanka into likely to participate in the labor market, but when sustainable tourist destinations. In the North, they decide to look for work, they are more likely IFC is working on the development of a Tourism to be unemployed. Social norms related to women’s Destination Plan for Mannar. Key recommenda- role in the household and especially as related to tions are being implemented in partnership with childcare responsibilities restrict women’s oppor- the private sector and other development partners. tunity to participate in the labor market. However, In the East, IFC has partnered with National Geo- beyond social norms, gender wage gaps and occu- graphic, to create a destination map for the region. pational segregation dissuade and constrain wom- The map highlights unique, authentic character- en from participating in the labor force. At the same istics of the East, and helps build the capacity of time, the formal legal framework for labor prevents small businesses working in tourism. These inter- women from taking up night work or part-time ventions are expected to create up to 2,000 jobs. work in the growing service sector and the laws governing maternity benefits make employers Changing Demographics bear the entire cost, potentially deterring employ- ers from hiring women. Gender-based violence and Unlike most South Asian economies, Sri Lanka women’s and children’s nutritional status are ad- does not have a demographic dividend. By 2050, ditional gender challenges. it is projected that more than 25 percent of the The World Bank Group is supporting govern- population will be over 60, up from 13.4 percent ment efforts to improve living standards and in 2015. The aging and urbanization of the popula- increase social inclusion and equitable access tion are having dramatic impacts on education and to public services. Activities focused on conflict- health as well as the economy. Population aging will affected areas have included the Community Liveli- likely impact the country’s fiscal accounts through hoods in Conflict Affected Areas project, the Emer- three channels: tax revenue, fiscal expenditure, and gency Northern Recovery project, and the North GDP growth. Unless labor force and employment and East Pilot Water, Sanitation and Hygiene proj- rates increase (notably through greater inclusion ect for post-conflict resettlements. These issues of women), a very small number of employed peo- have continued to be addressed at the national level ple will need to provide for a very large number of as well, including through: the Second Community non-working people. This will strain the budgets of Development project, a Poverty and Inequality As- families and government. With 96 percent literacy sessment, technical assistance on the government’s rates, the education system will need to place in- social protection strategy and Samurdhi program; creasing emphasis on job-specific skills that match a trust fund on economic integration of vulner- private-sector demand and tertiary education. The able groups; vocational training for the disabled; types of public services required will change as the pilot approaches to sustainable, affordable sanita- population becomes older and has a higher income. tion services to under-served low-income groups; The health system, for example, must build capac- work with youth organizations to support their ity to address non-communicable diseases and involvement in development issues; and technical problems associated with a wealthier, more urban assistance to the Ministry of Labor on its gender lifestyle (e.g. chronic conditions like diabetes and strategy. Analytical work on women’s labor force traffic accidents) and with an older population in- participation has also helped to shed light on why creasingly requiring geriatric care.6 Social protec- women, although well-educated compared to men, are less often in paid employment. World Bank support for a Social Safety Nets project is currently under preparation. Building on analytical work, 6  Sri Lanka has the oldest population age composition out- side of the Eastern European transition economies. In two de- the operation aims to assist the government both cades Sri Lanka’s age profile will be similar to that of Europe and in reducing household vulnerability and increasing Japan today, but with much lower income to support the large equity and opportunities for vulnerable popula- number of elderly dependents. Sri Lanka Country Snapshot 7 tion for the elderly will need to be enhanced and The World Bank is helping to identify and ad- the social security system made sustainable. Popu- dress the particular challenges to skills devel- lation densities associated with increasing urban- opment in Sri Lanka. Analytical work has helped ization will require investments in mass transit and Sri Lanka’s education authorities identify critical expanded water and sewage networks. policy issues related to the demand and supply of skills in a changing labor market, with a view to Education making the workforce development system more responsive to the market. The work informed a Skills Development Project, approved in May 2014, Sri Lanka’s achievements in education have which aims to expand the supply of skilled and em- been impressive, including universal access ployable workers by increasing access to quality and participation in primary education, high and labor market–relevant training programs. Sev- enrollment in secondary education, and gender eral innovative reforms are being supported under parity in general education. The primary educa- the project, including: establishing Industry Sector tion net enrollment rate is 99 percent, the primary Skills Councils; introducing performance-based education completion rate is over 95 percent, and funding for public training; introducing employ- gender parity in the education system is high com- ment-linked training programs to increase employ- pared with many other South Asian countries with er involvement in design and delivery of training an equal proportion of girls and boys enrolled in programs; strengthening the monitoring and eval- primary education and a slightly higher number of uation system of the skills sector; and improving girls than boys in secondary education. labor market information systems. The project is using an Investment Project Financing instrument Despite this progress, the general education based on a results-based financing modality. The system faces a number of future challenges. International Development Association (IDA) cred- The skills and competencies required for modern it of $101.4 million for the project is complemented knowledge-based economic activities have become by a $100 million loan from the Asian Development considerably more complex than in the past. To be- Bank (ADB) (through parallel financing), which is come a high middle-income country, as Sri Lanka financing the implementation of the government’s aspires to, the technical and vocational skills of Skills Sector Development Program for 2014-2020. the labor force need to be upgraded. Public expen- Both operations rely on common institutional and ditures on education are modest when compared implementation arrangements, including a set of to middle-income countries and other comparable similar disbursement-linked indicators and moni- nations. toring and evaluation arrangements, to ensure close harmonization. Improving the quality of human capital through effective education and skills development World Bank support for the education sector is is central to Sri Lanka’s economic growth and also being extended through the Transforming competitiveness. Sri Lanka’s growth and com- the School Education System project. This proj- petitiveness are constrained by a skills gap that has ect promotes equitable access to secondary educa- emerged with the changing labor market condi- tion, working to improve the quality of education tions. Sri Lanka’s economy is no longer dominated and strengthen governance and delivery of educa- by the agriculture sector but rather by services, fol- tion services. Several innovative reforms are being lowed by industry and manufacturing. Employment supported, including the establishment of a system patterns have followed, shifting significantly from for conducting national assessments of learning agriculture to industry and services. Labor produc- outcomes and promoting school-based manage- tivity levels need to rise, however. There is also a ment as well as school-based teacher development. mismatch between graduates and private-sector A Higher Education for the Twenty-First Century needs, particularly with regard to “soft skills”.7 project was completed in June 2016. It aimed to enhance the capacity of Sri Lanka’s higher educa- tion system, institutions, and human resources 7  Soft skills are defined as communication skills, presenta- to deliver quality higher education services. The tional skills and the ability to work in teams. project assisted in the expansion of job-oriented 8 higher education programs, and promoted better 100 percent coverage. Barring under-nutrition and teaching and learning, research and innovation, some persisting communicable diseases, such as and university-industry linkages through competi- tuberculosis and dengue, Sri Lanka has successfully tive quality and innovation grants. The project also dealt with most of the typical health problems of supported the establishment of a National Qualifi- low-income countries. cation Framework and a Quality Assurance System for Higher Education. A new higher education proj- Malnutrition among mothers and children is ect operation called Accelerating Higher Educa- an exception among otherwise exemplary ma- tion Expansion and Development project is under ternal and child health status indicators. The preparation. The World Bank is also supporting 2007 Demographic and Health Survey found that government efforts to mainstream early childhood 17 percent of children under five are stunted; data education reforms, including through the Early for 2016 should be available in the coming year. Childhood Development program. Investment in This problem is particularly acute in the Estate sec- early childhood development consistently brings tor, where stunting remains well above 30 percent. very high cumulative returns in human capital, is Tackling malnutrition will require a combination one of the most cost-effective ways to create social of multi-sector actions involving healthcare, food equity and could help disadvantaged households security, provision and use of clean water and ap- and communities to break the vicious cycle of pov- propriate sanitation, as well as communication, to erty often transmitted across generations. promote good health and nutrition-related atti- tudes and behaviors. IFC continues to help build the management skills of small scale entrepreneurs through IFC Health financing in Sri Lanka relies mainly on products (e.g. SME Toolkit, Business Edge), in- the government budget and out-of-pocket pay- cluding in post-conflict regions. IFC’s training ments. Both total and government health ex- and management tools for micro, small and me- penditures as a share of GDP (3.2 and 1.7 per- dium sized entrepreneurs were made available cent, respectively) are quite low. Nearly half of in Sinhala and Tamil, helping over 12,000 small health spending is paid out-of-pocket (OOP) by and medium sized entrepreneurs and 1,000 SMEs households, but this is mostly incurred by better through various partnerships. off households, not the poor. However, OOP is ris- ing as the population increasingly seeks care in the Health private sector, posing a challenge to financial pro- tection against high health expenditures. Sri Lanka’s health system has a long track re- Sri Lanka is in the advanced stages of a demo- cord of strong performance. For at least 50 years graphic and epidemiological transition. The it has achieved much better outcomes in maternal country faces the challenges of an aging population and child health and infectious disease control than and a shift in the disease profile, with non-com- would have been predicted by its income level. The municable diseases (NCDs) now accounting for 85 remarkable success in reducing maternal and in- percent of the total burden of disease. Beyond the fant mortality to very low levels (30 per 100,000 rapidly changing age distribution, economic devel- and 8 per 1,000 live births, respectively)8 is par- opment, urbanization, increased motorization and tially the result of effective and integrated maternal lifestyle changes (including low levels of physical and child health services for the last half century. activity, less healthy eating, and tobacco, alcohol, Communicable diseases like malaria and vaccine and substance abuse) are contributing to the grow- preventable diseases (such as polio, measles, diph- ing incidence of NCDs. theria, and tetanus) are close to elimination, and key services for childhood immunizations, ante- While Sri Lanka has achieved excellent health natal care and institutional deliveries are at nearly outcomes and an equitable health system at relatively low cost, significant challenges lie ahead. Although the model of extensive public pro- vision has served Sri Lanka well, the country now 8  MDG database, http://mdgs.un.org/unsd/mdg/data.aspx, finds itself at a crossroads. Servicing the needs of accessed August 2016 the elderly, as well as treating and managing NCDs, Sri Lanka Country Snapshot 9 requires longer-term and more expensive services million people live in urban areas.9 It is projected relative to maternal and child health and infectious that by 2020 Sri Lanka’s population will reach 23 diseases interventions. The primary care function million with 60 percent (13.8 million people) re- for managing NCDs is currently weak, with most siding in urban areas. Sri Lanka’s economic growth patients going directly to over-crowded hospitals. has been primarily driven by the Colombo Metro- In brief, treating and managing the NCDs for the politan Region (CMR), which currently generates elderly will require longer term, better integrated 45 percent of the country’s GDP and is home to and more expensive services relative to previous 28 percent of its population. Consistent with this, interventions. the Colombo Metropolitan Region is the country’s most prosperous region with a per capita income The World Bank has been supporting Sri Lan- of $3,808. Recognizing the importance of this re- ka’s health sector through analytical work and gion to economic growth, the government initiated credits from the IDA since the late 1980s. The a program to transform the CMR into a competitive Health Sector Development Project (2004-2010) and environmentally friendly world-class capital. contributed to improving service delivery and building system capacity at the central, provincial, Central to the government’s development and district levels. A Japan Social Development agenda is the creation of a network of well-con- Fund (JSDF)-supported Local Level Nutrition In- nected, efficient, and environmentally sustain- terventions project has helped to address the nu- able cities throughout the country. Sustainable tritional problems of the resettled population in growth and long-term prosperity are expected to the Northern Province. A national health sector result from a more balanced distribution of eco- program is also currently being supported under nomic opportunity that in addition to Colombo also a $200-million Second Health Sector Development includes other major urban centers such as Kandy, Galle, and Jaffna. The linking of rural areas to ur- Project (approved in FY2013), designed to improve ban centers is also important. While Sri Lanka is the standards of performance of the public health taking important steps to implement its urban vi- system and enable it to better respond to the chal- sion, including connectivity improvements, urban lenges of malnutrition and NCDs. The project also renewal, and investments in ports, airports, and is supporting innovation, results monitoring, and special economic zones, significant challenges to capacity building in the health sector. Funds under future urban development and urban-rural inte- the project are disbursed as budget support linked gration are emerging. Urban authorities often have to agreed results achieved over the project period. inadequate technical and institutional capacity for In recent years, analytical work has been undertak- strategic planning, face overlapping and complex en on the private health sector in Sri Lanka, health institutional mandates for urban management and financing, urban health, and nutrition in the Estate service delivery, and are constrained by inadequate sector. financial resources, including underdeveloped mu- nicipal revenue generation. Such constraints often Rural-Urban Transition result in delayed implementation of urban plans as well as inadequate and inefficient service pro- Sri Lanka has been one of the countries in South vision. In addition, regulatory and institutional Asia that has experienced rapid urbanization. constraints in land markets prevent more efficient Sri Lanka is in the midst of a structural transforma- tion away from agriculture. Agriculture accounted for approximately 10 percent of GDP in 2014, down 9  As measured using the agglomeration index which defines from 19.9 percent of GDP in 2000. Industry and as urban all Divisional Secretariats (DS-divisions) with an aver- services sectors have been growing, accounting for age population density of 150 persons per km2 and which lie within a 60 minute drive of a city with population greater than 32.5 percent and 57.5 percent of GDP, respectively. 100,000. If we instead define as urban all DS-divisions with a This structural shift has led to an increased agglom- population density of 150 persons per km2 and which lie with- eration around the main urban areas. Population in 60 minutes of a city with a population greater than 50,000, the estimated urban share increases to 64.6 percent. Source: density in urban areas has almost doubled over the Urbanization in South Asia: An Application of the Agglomera- past decade to 3,213 people per square kilometer, tion Index, Background Paper to the SAR Urbanization Flagship, and, as of 2011, 35.3 percent of the country’s 21 Washington, D.C.: The World Bank. 10 and sustainable land use, including public infra- About 31 percent of the population remains structure and property development. Commercial engaged in agriculture. Agriculture has been an and low-income housing development is lagging important driver of poverty reduction, accounting behind demand while at the same time, the institu- for about one-third of the overall decline in poverty tional and regulatory frameworks for urban man- over the past decade. Sri Lanka has become self- agement are not equipped to address and limit ur- sufficient in rice production, but while achieving ban sprawl. this has allowed the agriculture production struc- ture to remain concentrated in the relatively lower- The World Bank is supporting Sri Lanka imple- valued crops. In 2010, about 44 percent of the cul- ment its urbanization and rural-urban integra- tivated area was under rice cultivation (up from 37 tion agenda. The Metro Colombo Urban Develop- percent in 1980) but the share of rice in the overall ment Project, approved in 2013, is assisting the value of crop production was only 21 percent. Gov- Colombo Metropolitan Region to upgrade basic ernment policy has largely neglected the domestic urban infrastructure and to implement an innova- fruits and vegetable sectors. Despite growing do- tive integrated urban flood control and urban wet- mestic demand and significant potential for export land management approach. The Strategic Cities growth, higher-valued crops have not expanded Development Project and the Additional Financing and demand has been met by increased imports. A to the project (approved May 2016) are expanding new Agriculture Sector Modernization Project was the approach to urban infrastructure upgrading approved by the Board in June 2016. This Project to Kandy, Galle and Jaffna—three strategic city re- seeks to assist the government in: strengthening gions in the center, south, and north, and support- the country’s national agriculture research and ing investments in urban water supply, sewage and development and extension system and policy; im- drainage systems, cultural heritage rehabilitation, proving productivity and climate resilience in irri- urban transport and traffic management and oth- gated agriculture; and piloting value chain models ers areas. Technical assistance support will help to promote diversification and increase competi- improve the cities’ capacity to better design, plan tiveness and rural income. and manage urbanization. The World Bank Group’s The World Bank Group is supporting improve- investment in urban renewal and upgrading is sup- ments in water supply and sanitation and local ported by various complementing analytical and service delivery. The WB is undertaking a new technical assistance activities, including the Co- Water Supply and Sanitation Project, approved in lombo Green Growth technical assistance program. 2015. The government places great importance on the development of the water and sanitation sec- The World Bank Group has supported the gov- tor. Nationally, piped borne water supply cover- ernment’s transportation efforts through a age stands at 43.5 percent (75 percent in urban Transport Connectivity project. Under this proj- and only 15 percent in rural areas). Access to safe ect approved by the Board in May 2016, an innova- drinking water, which includes protected wells, is tive performance-contract management approach estimated at 83.5 percent of the total population. to road rehabilitation and maintenance is being Sanitation coverage is estimated at 85.7 percent rolled out. Performance-based road rehabilitation of the population, with 83.2 percent having onsite and management is expected to improve cost effi- sanitation and 2.5 percent a piped system. An ad- ciency and reliability of such works through better ditional IDA financing operation to the ongoing risk sharing between the public and private sec- North East Local Services Improvement project has tors. In addition, the Bank is providing technical as- recently been approved to support consolidating sistance on the modernization and development of achievements in local service delivery. IFC is assist- the country’s secondary level airports and on the ing the government in the design and implementa- railway system. IFC’s investment in the construc- tion of a PPP transaction to develop the Weliwita tion of Sri Lanka’s South Asia Gateway Terminals Bulk Water Supply project. IFC’s mandate includes -the country’s first privately-operated port con- undertaking due diligence and structuring a com- tainer terminal- has increased the capacity of the petitive and transparent process to attract private terminal and played a pivotal role in developing Sri sector engagement in financing, building, operat- Lanka’s shipping and logistics sector. ing and maintaining the bulk water supply infra- Sri Lanka Country Snapshot 11 structure. The project is expected to significantly perous urban areas and provinces. Collection rates increase access to clean water. are generally low across the country and average 31 percent. This compares unfavorably with other Environment, Climate Change and Disaster middle-income countries that average collection rates of 68 percent. The bulk of waste is organic, Risk Management suggesting there is scope for reducing the pollution load of wastes requiring ultimate disposal, and for Sri Lanka has a wealth of environmental assets, employment generation through complementary boasting the highest biodiversity per square composting activities. kilometer in Asia. During the conflict that ended in 2009, the slow pace of economic development The government recognizes the importance of meant that degradation was slower than it other- environmental sustainability but needs to take wise might have been. Among the government’s more action. While the country has been effective goals is raising forest coverage from 23 percent in identifying environmental problems and de- to 35 percent of the land area by 2020. Sri Lanka veloping policies and strategies to address them, risks losing many of its assets and biodiversity: 33 actual steps taken to resolve environmental and percent of fauna and 61 percent of flora have been natural resource issues have been weak. Rapid and found to be under threat. The country’s rate of de- unplanned development has contributed to habi- forestation -- loss of more than 35 percent of its tat fragmentation and the loss of key ecosystem old-growth forest cover since 1990 -- is among the services across the country. The country has the highest in the region. Total forest cover has dimin- potential to ensure environmental sustainability. ished by almost 18 percent with predictable con- Recent policy moves are encouraging, including sequences for watersheds, soil loss, and the pano- the declaration of full protection of mangroves, the ply of environmental and economic damages. Sri proposed ban on imports and local manufacture Lanka has tremendous potential for being a leader of asbestos, as well as strict control on polythene. in wildlife tourism, which is largely considered one of the country’s key untapped and underdeveloped Climate-related hazards pose a significant markets. Through careful development of this po- threat to economic and social development. Ex- tential niche industry, Sri Lanka can reap high ben- treme variability of rainfall is the defining feature efits and, in turn, benefit biodiversity conservation. of the country’s future climate. With climate pro- jections indicating a rising rainfall trend in the wet Sri Lanka is dealing with many of the environ- zone and decreasing rainfall trend in the dry zone, mental challenges that come with prosperity, the risks associated with water-related hazards are including air pollution and waste management expected to intensify. Less and less frequent precip- issues including garbage and sewage. Though itation in the already dry areas could increase the data is sparse, the evidence broadly suggests that frequency and duration of droughts while higher air pollution and the impacts on health are worsen- and more variable rainfall is expected to increase ing or have stagnated at undesirable levels in the the frequency and intensity of floods in the wet major urban centers. The World Health Organiza- zone. Climate change is expected to significantly tion has estimated the number of deaths attribut- impact agriculture, water resources, energy, envi- able to indoor and outdoor air pollution in Sri Lan- ronment, and fisheries in Sri Lanka. ka to be 4,200 and 1,000, respectively. Indoor air pollution due to exposure to emissions from burn- The fiscal and physical impact of natural disas- ing fuel continues to pose a significant health prob- ters, particularly flooding and drought, have lem. While strategies to reduce indoor exposure -- been sizeable over the past decade. Floods have including shifting from biomass to other fuels such cumulatively affected more than 10 million people as gas, dissemination of improved cooking stoves, since 2000 (over 375,000 people annually on aver- and improved kitchen design -- are in place, these age), while droughts have affected more than five factors are being influenced by economic, cultural, million.10 River systems are highly flood-prone, and social factors. Waste generation is character- ized by distinct geographic patterns in Sri Lanka, with higher volumes being generated in more pros- 10  Sri Lanka Disaster Information System. 12 with excessive flows often causing extensive dam- emergency preparedness and response capac- age. Lack of well-developed flood management in- ity since the 2004 tsunami, a more comprehen- frastructure means that flooding will be recurring. sive approach to disaster risk management is Compounding this is a lack of coordination across needed. The government has recently made it a upstream management of dams and downstream priority to strengthen the country’s resilience to flood risk management. Landslides and high winds natural disasters and climate change and sought in- frequently destroy or damage thousands of houses ternational help. A comprehensive program of sup- every year. A Fiscal Disaster Risk Assessment study, port involving adaptation-enhancing investments recently completed by the World Bank, estimates and a Catastrophe Deferred Drawdown Option the annual average disaster loss at $380 million, (CAT-DDO) was prepared and approved in FY2014. an amount far surpassed in some years. Floods in To increase resilience, physical investments will January 2011, for instance, affected more than a be financed to address short-term infrastructure million people in the Northern, North Central and weaknesses, coupled with a contingent credit line Eastern provinces and caused more than $600 mil- to safeguard against immediate fiscal impacts of lion in direct damage. The floods of December 2012 a disaster. The program is comprised of: (i) the and 2014 affected more than half a million and one Climate Resilience Improvement Project (CRIP) million people, respectively. These floods hit the aimed at the immediate reduction of physical risk agriculture sector hard, destroying crops, livestock and improving understanding of disaster risks to and agricultural infrastructure as well as trans- direct future investment; (ii) a Development Policy portation. Total damage from the 2004 tsunami Loan (DPL) with CAT-DDO to provide the govern- was estimated to be around $1 billion and the esti- ment with liquidity in the immediate aftermath mated financial needs, including immediate relief, of a disaster; (iii) support for the development of were estimated to be twice as much. a long-term Disaster Risk Financing strategy to strengthen fiscal resilience to events; and (iv) a Disasters triggered by natural events have a Comprehensive Disaster Risk Mitigation Project disproportionate impact on the poor. Disasters (planned for FY2017) that would, among other exacerbate social, political, and economic factors things, implement the recommendations from the that contributed to the vulnerability of the poor analytical work of the CRIP. In addition, the World and marginalized before the disaster. The poor Bank, as part of its analytical and advisory activi- have limited labor skills, fewer assets, and little or ties, has been helping Sri Lanka to mainstream no savings. They have little opportunity for risk di- disaster risk management with a view to strength- versification and restricted access to credit. Natu- ening its early warning system and the capacity of ral disasters can also increase poverty indirectly the government to assess risks, integrate disaster through the effects of lower economic growth, risk reduction into the planning process and pre- higher inflation (to which the poor are more vul- pare post-disaster assessments. As noted above, nerable), and through consequential lower govern- vulnerability to flooding in Colombo city region is ment spending for social services. Disruption of being addressed under the Metro Colombo Urban public utilities such as drinking water or sewage Development Project. The Dam Safety and Wa- systems during a disaster increases the probability ter Resources Planning Project is supporting the of gastrointestinal and other illnesses among the government in strengthening high-risk dams and poor. Damage to transport infrastructure hinders improving water resources planning. Additional their access to health facilities and affects the de- financing for this project is supporting the rehabili- livery of humanitarian aid, potentially increasing tation of a number of additional dams especially in malnutrition among children and the elderly. In Sri the Northern and Eastern provinces that could not Lanka, preliminary research on the vulnerability of be included in the original project due to conflict in poor communities to disasters has found a correla- these areas at that time. tion between populations living below the poverty line and those affected by damage to houses by floods and landslides. Workers in the tea estates, Energy Sector who have a precarious livelihood anyway, show particular vulnerability to such natural disasters. The government of Sri Lanka has established a series of targets for the energy sector, most While Sri Lanka has invested significantly in notably for household electrification and the Sri Lanka Country Snapshot 13 diversification of the generation mix. The gov- also be profitable. Since the project’s closure, Stan- ernment hopes to achieve universal electrification dardized Power Purchase Agreements have been by 2016.11 Until the mid-1990s, most of the new signed for at least 95 renewable energy projects electricity demand in Sri Lanka was met by hydro- with a total capacity of 281 MW. Some banks have power. All the large-scale sites that are economical- even taken their financing abroad to other renew- ly viable have largely been exploited. Consequently, able energy projects outside of Sri Lanka. Sri Lanka the bulk of new energy has come from oil-based is now taking steps, with World Bank support, to generation, whose share has increased from 6 per- access international climate finance to help cata- cent in 1995 to 54 percent in 2011. A shift towards lyze greater investment in renewable energy gen- more coal-based generation is evident since 2012. eration. IFC investments in renewable energy proj- With 50 percent of Sri Lanka’s total export income ects -such as the SENOK’s and Renewgen’s- in Sri (approximately $5 billion per year) currently spent Lanka are also helping to increase the generation on the import of fossil fuels12, diversifying the fuel of clean energy, minimize the negative impact of mix will be crucial in the future. To meet the grow- waste dumping, and reduce greenhouse gas emis- ing demand, the country’s power expansion plan sions in the country. consists of a four-fuel mix comprised of existing large hydropower and oil-fired power together WORLD BANK GROUP PROGRAM IN SRI LANKA with new investments in coal plants and non-con- ventional renewable resources.13 Given Sri Lanka’s high dependence on imported fossil fuels, the gov- ernment has set a target of achieving 20 percent The World Bank Group seeks to support Sri Lan- non-conventional renewable energy (NCRE) in the ka in its transition to a middle-income country. country’s electricity generation mix by 2020. To The World Bank Group’s Country Partnership achieve this target, Sri Lanka will need approxi- Framework (CPF) for 2017-2020 was endorsed mately 1,000 megawatts (MW) capacity of NCRE in by the institution’s Board of Directors in June 2016. the coming years. The CPF is based on the Systematic Country Diag- nostics (SCD) carried out in 2015 and the client World Bank support for Sri Lanka’s renewable priorities. energy sector has had a demonstrable impact. The Renewable Energy for Rural Economic Devel- Main areas of support under the CPF are macro- opment Project, which closed in December 2011, fiscal stability and competitiveness; promoting supported the development of 185.3 MW of re- inclusion and opportunities for all; and seizing newable energy capacity, or about 65 percent of green growth opportunities, improving envi- total renewable electricity generating capacity, as ronmental management and enhancing adap- of March 2012. It also provided off-grid electricity tation and mitigation potential. The WBG activi- to over 116,000 remote rural households, benefit- ties are focused on improving revenue mobilization ting around half a million people. The project also and public financial management; enabling private helped to address one of the most important barri- sector development including through agriculture ers to renewable energy development, namely the modernization and financial services; improving availability of, and access to, sufficient long-term education, healthcare and social safety net sys- credit. Commercial banks were encouraged to lend tems; support for lagging areas; green urban de- to renewable energy projects to demonstrate that velopment; and climate resilience and disaster risk the risks are manageable and that lending would management. The current active World Bank portfolio in Sri Lanka comprises 15 projects, 13 financed by 11  The current share of electrified households is 94 per- cent, according to the Ministry of Power and Energy. IDA, and two financed through the Internation- al Bank for Reconstruction and Development 12  Sri Lanka Energy Sector Development Plan for a Knowl- edge-based Economy, 2015-2025, Ministry of Power and Energy operations, with a total net commitment value 13  Small hydro (less than 10 megawatts), wind, biomass, of $1.9 billion. Urban and rural development ac- and other energy sources such as agricultural waste, landfill gas counts for 26 percent of the overall portfolio, fol- and municipal solid waste. lowed by education and health (24 percent), trans- 14 port and competitiveness (18 percent), water (16 commitments totaling $273 million. As of June 30, percent), and resilience to climate and disaster risk 2016, IFC’s committed portfolio stood at over $228 (16 percent). Trust funds have continued to play million. an important role in implementing the World Bank Group’s CPS in Sri Lanka, supporting both analyti- Strategy: IFC’s strategic approach in Sri Lanka is cal work and technical assistance, as well as pro- underpinned by the WBG’s FY17-20 CPF Strategic viding stand-alone or co-financing for projects. The pillars of macro fiscal stability and competitive- portfolio currently comprises 5 recipient-executed ness, inclusion, and green/sustainable growth. By trust funds of a total net commitment value of $54 working closely with the private sector, the govern- million. This fiscal year, the lending program is to ment, and the World Bank, IFC focuses on facilitat- include four new projects. They are the Sri Lanka ing inclusive growth. The focus remains on priority Competitiveness Development Policy Loan ap- sectors that enhance productivity, support contin- proved at the end of July 2016, and projects sup- ued prosperity and sustainable development. Ar- porting the financial sector modernization, social eas of focus include financial and social inclusion protection, and higher education. The World Bank including gender, health and education; logistics Group’s program of support to Sri Lanka continues and infrastructure to facilitate movement of goods, to benefit from close coordination and collabora- people and capital; and access to jobs, markets, tion with development partners. products and services. Sri Lanka is expected to graduate from IDA fi- Examples of IFC’s work in Sri Lanka include: nancing at the end of the IDA17 cycle. As part Boosting Financial Inclusion of the ongoing IDA18 replenishment discussions to conclude in December 2016, consideration is being • IFC has had a long-standing partnership with given to possible IDA transitional support for grad- the SANASA Movement. Since 2009, we have uating countries like Sri Lanka. While Sri Lanka is, worked with SANASA’s development bank and in many respects, a development success story, the insurance company, helping to increase access country has a continued need for concessional fi- to financial services to those that need it the nancing. Financing is needed to support the coun- most – micro and small scale entrepreneurs try’s transition after three decades of civil conflict and farmers living in under-served regions of that ended only seven years ago. With the peace the country. Through our advisory interven- dividend’s mark on economic growth waning, key tions alone, we have helped Sanasa provide structural reforms and shifts in the economy need over 300,000 loans to small businesses and in- to be supported to sustain Sri Lanka’s progression surance to over 40,000 small farmers. to upper middle-income country status. There is • IFC’s multiple investments in Sri Lanka’s Na- also a need to address poverty and vulnerability, tional Development Bank and the Commercial particularly in the North and East following the civ- Bank of Ceylon are bringing innovative financ- il conflict, as well as the Estate Sector and Uva Prov- ing models and new investors to the country, ince. The Government is interested in IBRD lend- with the aim of expanding access to finance for ing of up to $300 million annually, while the actual small and medium entrepreneurs in Sri Lanka. amount will depend on Sri Lanka’s macroeconomic Through these investments, IFC is helping NDB environment, overall demand for IBRD resources and Commercial Bank reach over 180,000 mi- from other clients and IBRD’s lending capacity. cro and small businesses. INTERNATIONAL FINANCE Facilitating Small Business Growth CORPORATION (IFC) • IFC’s investment in Senkadagala Finance will enable the company to extend over 50,000 new loans to micro, small, and medium enterprises Sri Lanka became an IFC member country in over a five-year period. The loan will also help 1956. Since then, IFC has invested over $1 bil- Senkadagala Finance increase its presence in lion in the country. In fiscal years 2014-2016, IFC Sri Lanka, focusing on the northern and east- made cumulative long-term finance investment ern regions. Sri Lanka Country Snapshot 15 • IFC has partnered with the Sri Lanka Institute will help the company expand operations, of Directors to promote improved corporate reach more farmers, and improve efficiency of and ethical business practices for small busi- its supply chains. It is expected to create over nesses in Eastern Sri Lanka. Training sessions 2,000 new jobs over the next five years, gen- are held for SMEs across the island, focusing erate opportunities for skills development for on how small businesses could operate busi- rural youth, and boost inclusive growth by ex- ness better and more responsibly to spur their panding access to markets for farmers as the growth. company grows its retail network across Sri Supporting Agribusiness Lanka. • IFC’s loan of $28 million to apparel manufac- • IFC and Sanasa Insurance Company have ex- turer MAS Capital Ltd. and its subsidiaries sup- panded access to weather-index insurance for ports the group’s expansion and innovation small farmers. This flexible, affordable product plans by help MAS expand its product portfolio helps farmers by offering protection against and boost exports, while creating jobs. losses incurred on their crops due to unfavor- able weather and natural disasters. To date, • As the Sri Lankan mobile market grew, IFC pro- this project has reached over 50,000 small vided Dialog Axiata with large-scale, long-term farmers. debt and equity financing to help the company expand and remain competitive. IFC’s invest- • Based on the learnings of the weather-index ments supported the company’s overall expan- insurance project, IFC is assisting in improv- sion and quadruple play strategy and also re- ing the performance and reach of the national assured other lenders, helping Dialog mobilize agriculture insurance provider to better serve additional financing. a larger number of farmers. This project is ex- pected to reach up to 500,000 farmers. • By working with several clients, we are also MULTILATERAL INVESTMENT GUARANTEE AGENCY (MIGA) helping farmers living in post-conflict Sri Lan- ka rebuild their lives through easier access to credit and innovative financing models Strengthening the Tourism Sector Sri Lanka is an important country for MIGA, given MIGA’s global focus on supporting high • IFC’s investment helped Sri Lanka’s Ceysands development impact investments into IDA Resorts on a project to expand and renovate countries and fragile and conflict-affected situ- the Centara Ceysands hotel, converting it into ations. MIGA stands ready to participate in pro- a four-star, 166-room hotel, boosting tourism ductive projects across sectors in the country, and and creating jobs. is partnering very closely with the World Bank and Boosting Retail IFC with all potential transactions, to ensure full collaboration. • IFC’s investment in Cargills Foods Company 16 SRI LANKA: AGRICULTURE SECTOR MODERNIZATION PROJECT (ASMP) KEY DATES: Approved: June 28, 2016 Effective: TBD Closing: December 31, 2020 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 125.00 Govt. of Sri Lanka 00.74 Other: Communities 44.10 Total Project Cost 169.84 *$ millions; as of June 30, 2016 BACKGROUND AND OBJECTIVES: With rice self-sufficiency secured, within the Government a consensus emerged that the country should more strategically diversify out of the relatively low value food crops and move towards high-value agriculture and promote agricultural exports. This structural shift is critical to sustain income growth in the future, and accelerate poverty reduction and re-reverse the trend of increasing inequality. While most fruits and vegetables not only generate higher income as compared to rice, they demand more intensive labor input, higher levels of technology input, better crop management, and investments in post-harvest, marketing, and better organized value chains overall; there is also significant potential for employment growth with such diversification. A structural shift towards to a more high-value production structure, agro-processing and value addition activities, and increased competitiveness would also be needed. Moreover, there is a need to review existing trade policies to ensure that they support high-value export agriculture; realign public sector support away from general fertilizer subsidies to better target support and greater attention to R&D; revisit and relax the rice self-sufficiency policy and allow for more demand-driven and market oriented production; and overcome long- standing structural constraints, such as low organizational levels of farmers, land fragmentation, and poor price information systems The objective of the project is to support increasing agriculture productivity, improving market access, and enhancing value addition of smallholder farmers and agribusinesses in the project areas. The project aims to: (i) improve agriculture value chain development; and (ii) promote productivity enhancement and diversification demonstrations. Through the proposed project, the Bank is reengaging in the agriculture sector after many years of absence. The project is planned as a first intervention of a longer term engagement, and this first project would primarily focus on agriculture diversification, pro-poor value-chain development for higher value-added production, and agriculture income generation. The proposed project would not address the structural reform issues in the irrigated rice sector and the plantation estate sector at this point. In these important agriculture sub-sectors, the Bank would first engage through analytical and technical assistance support with the purpose to develop a better understanding and consensus for downstream policy and institutional reforms as well as investments. KEY RESULTS ACHIEVED AND EXPECTED: Key results expected includes reaching 110,000 direct beneficiaries (40,000 women); 80,000 clients adopting improved agriculture technology (24,000 women); 25 percent increase in average value of sales of products; and 12,500 new jobs generated through investments. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of National Policies and Economic Affairs; Ministry of Agriculture; Ministry of Primary Industries; and Provincial Councils Key Partners: Local Farmer Organizations Sri Lanka Country Snapshot 17 SRI LANKA: TRANSFORMING THE SCHOOL AND EDUCATION SYSTEM AS THE FOUNDATION OF A KNOWLEDGE HUB PROJECT KEY DATES: Approved: November 29, 2011 Effective: June 21, 2012 Closing: June 30, 2017 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 100 66.2 33.8 Govt. of Sri Lanka Other Total Project Cost 100 66.2 33.8 *$ millions; as of August 22, 2016; For more information see the latest Implementation Status and Results Report BACKGROUND AND OBJECTIVES: The Transforming the School Education System as the Foundation of a Knowledge Hub Project is a $100 million initiative helping the government to strengthen the country’s education system at multiple levels, including national and provincial educational agencies, but especially schools. Several innovative reforms are being supported, including the establishment of a system for conducting national assessments of learning outcomes, school-based management, and school-based teacher development. The Project aims to enhance equitable access and quality of primary and secondary education to provide a foundation for the knowledge-based economic and social development of the country. It is organized under three components: (i) promoting access to primary and secondary education; (ii) improving the quality of education; and (iii) strengthening governance and delivery of education services. These are aligned with the themes of the government of Sri Lanka’s Education Sector Development Framework and Program for 2012-2016. KEY RESULTS ACHIEVED AND EXPECTED: The overall progress of the project has been satisfactory. All outcome and disbursement linked indicators have been achieved to date. ■■ About 3.5 million students and 199,000 teachers have benefited so far ■■ The survival rate of students through grade 11 is 86 percent (88 percent for girls and 83 percent for boys). ■■ The National Assessment of Learning Outcomes, in Mathematics, English, Sinhalese and Tamil for students in Grade 4, was carried out in December 2015. The overall findings suggest an increase in Grade 4 students’ achievement levels compared to 2013 baseline. ■■ 7,745 schools in 73 percent of zones have completed the Program for School Improvement (PSI) annual cycle. ■■ 7,745 schools in 73 percent of zones have implemented the School-Based Teacher Development (SBTD) programs. ■■ A modernized quality assurance program is being implemented in all nine provinces, linked to the rolled out of the PSI program. ■■ The Content and Language Integrated Learning (CLIL) framework for Bilingual Education has been introduced in approximately 1,000 secondary schools in all nine provinces. The program covers about 74,000 students and around 6,200 teachers. ■■ Approximately 87 percent of education zones and divisions have been strengthened through human resource development of staff, the construction of physical facilities and the provision of equipment and technology. KEY DEVELOPMENT PARTNERS: Implementing Agency: The Ministry of Education; the Provincial Councils; and the Ministry of Provincial Councils and Local Government Key Partners: World Bank, ADB, UNESCO, UNICEF, Germany’s GIZ, Australian Government, the Korean International Cooperation Agency are supporting Sri Lanka’s Education Sector Development Framework and Program. The Bank is coordinating to ensure that the development partner activities are harmonized with the government program. Australia’s Department of Foreign Affairs and Trade (DFAT) supports the Education Sector Development Framework and Program through a trust fund agreement with the Bank. 18 SRI LANKA: EARLY CHILDHOOD DEVELOPMENT PROJECT KEY DATES: Approved: June 24, 2015 Effective: September 25, 2015 (expected) Closing: June 30, 2021 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 50 1.5 50 Govt. of Sri Lanka Other Total Project Cost 50 *$ millions; as of August 22, 2016; For more information see the latest Implementation Status and Results Report BACKGROUND AND OBJECTIVES: Sri Lanka has around 17,000 early childhood development (ECD) centers serving approximately 513,000 children, 3-5 years. A national survey of ECD centers indicates that less than half of them meet basic requirements for instructional quality. The coverage of ECD services is also low, with only 65 percent of the children in the 3-5 age group enrolled in ECD centers. ECD provision in Sri Lanka largely depends on non-state sector. Public expenditure on ECD is significantly lower than expenditures in other MICs. . The project has two components: (i) expand and strength the delivery of ECD services, and (ii) support project management, and monitoring and evaluation. While ECD services are provided primarily by non-state ECD centers, the project provides support to both state- and non-state managed ECD centers. The key project activities focus on improving the quality of ECD provision, expanding equitable access to ECD services, and improving the quality of ECD services in the plantation sector. To enhance the quality of ECD provision, the project supports quality management, facility improvement of ECD centers, training of ECD teachers and teacher assistants, and the training of trainers and government staff working in the ECD sector. It supports both supply- and demand-side interventions to enhance access to ECD services Such interventions include awareness programs, fee waivers to ECD center students from poor households, and establishment or extension of facilities in un-served and underserved areas. The design of the components and activities under the project draws upon the findings and recommendations from an ECD study conducted by the World Bank in FY2013/14.. KEY RESULTS ACHIEVED AND EXPECTED: The project became effective in December 2015. Project implementation is on track to achieve the first year targets. Data collection for a Census of ECD centers is expected to be complete by October 2016. Child development assessments have been prepared and piloted. The procurement process to deliver packages of teaching and learning materials to ECD centers has commenced. By end-2016, at least 200 ECD centers will receive the packages. Modules for short-term training of master trainers, teachers and teacher assistants are being developed. The first round of training is expected to completed by end-2016. PHDT has commenced the ECD Diploma program for 76 participants. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Women and Child Affairs, Provincial Councils, Plantation Human Development Trust Key Partners: The World Bank, the United National Children’s Fund (UNICEF), and Japan International Cooperation Agency (JICA) are active development partners in the ECD sector in Sri Lanka. Additionally, several international and national NGOs are supporting the sector. Sri Lanka Country Snapshot 19 SRI LANKA: SKILLS DEVELOPMENT PROJECT KEY DATES: Approved: June 20, 2014 Effective: October 23, 2014 Closing: December 31, 2019 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 101.5 17.56 86.70 Govt. of Sri Lanka 405.5 Asian Development Bank 100.0 Government of Korea 26.0 Germany (GIZ) 17.0 Total Project Cost 650.00 *As of August 31, 2016 BACKGROUND AND OBJECTIVES: The project aims to expand the supply of skilled and employable workers by increasing access to quality and labor market–relevant training programs. It supports implementation of the government’s Skills Sector Development Program (SSDP) for 2014-2020. The project is comprised of two components: ■■ Under Component 1, the result–based funding component, the project supports three closely related types of interventions: (i) strengthening governance and management; (ii) enhancing the quality and relevance of training; and (iii) increasing access to training opportunities. Several innovative reforms are being supported under the project, including establishment of Industry Sector Skills Councils, introduction of performance-based funding for public training provides, introduction of employment-linked training programs to increase employer involvement in design and delivery of training programs, strengthening the monitor- ing and evaluation system of the skills sector, and improving labor-market information systems. ■■ Under Component 2, an innovation, results monitoring, and capacity development component, the project will help to strengthen implementation, coordination, and the monitoring and evaluation (M&E) capacity of the Ministry of Youth Affairs and Skills Development, an implementing ministry. The IDA credit will be complemented by a $100 million loan from the ADB (through parallel financing). The ADB operation uses a Performance for Results lending instrument to finance the implementation of the government’s program. Both operations will rely on common institutional and implementation arrangements, including a set of similar disbursement-linked indicators and M&E arrangements, to ensure close harmonization. KEY RESULTS ACHIEVED AND EXPECTED: The project, which became effective in October 2014, is expected to achieve the following key results: ■■ Increase the number of trainees enrolled in public and private training institutions; ■■ Improve the completion rate of trainees enrolled in public training institutions; ■■ Improve the average earnings of graduates in skills development programs relative to earnings of GCE-O level graduates; ■■ Increase employer satisfaction with graduates from training institutions. KEY DEVELOPMENT PARTNERS: Ministry of Skills Development and Vocational Training, Ministry of Finance, ADB (through parallel financing) 20 SRI LANKA: SECOND HEALTH SECTOR DEVELOPMENT PROJECT KEY DATES: Approved: March 27, 2013 Effective: September 12,2013 Closing: September 30, 2018 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 200 98.01 124.72 Govt. of Sri Lanka (for 2013-18) 4,970 Other Total Project Cost 5,170 *As of August 31, 2016 BACKGROUND AND OBJECTIVES: Sri Lanka is seeing the effects of demographic and epidemiological transitions -- an aging population, increasing prevalence of non-communicable diseases, both chronic (diabetes, cancers, cardio-vascular diseases, mental health issues etc.) and acute (mainly injuries). The country continues to face emerging and re-emerging communicable diseases like tuberculosis, leptospirosis, dengue, and influenza. Furthermore, malnutrition among mothers and children has not improved adequately, with 17.9 percent of babies delivered each year born at a low birth-weight, and 18 percent of children under-five stunted. Fifty percent of outpatient, 95 percent of in-patient, and 99 percent of preventive-care needs of the country are provided by the public health system. The private health sector mainly provides outpatient care services, with expanding roles in in-patient, investigative, and laboratory services, largely in urban and semi-urban areas. The Ministry of Health finalized the National Health Development Plan (NHDP) under the guidance of the government’s national development strategy to improve the health sector to meet middle-income country standards. The Second Health Sector Development Project supports the implementation of the government’s NHDP. It aims to upgrade the standards of performance of the public health system and enable it to better respond to the challenges of malnutrition and non-communicable disease. More specifically, the project supports the implementation of interventions prioritized under the NHDP for: (i) addressing malnutrition: (ii) improving prevention and control of non-communicable diseases: and (iii) improving health systems. Funds are disbursed as budget support linked to agreed results achieved over the given period. The project also supports innovation, results monitoring, and capacity building in the health sector. A core team is involved with monitoring and support, training, workshops, testing of innovative ideas, operational research, demographic and health surveys, base-line and end-line surveys and disbursement linked indicators’ results reporting. KEY RESULTS ACHIEVED AND EXPECTED: This project supports the implementation of 20 results (a subset of the National Health Development Plan results). In the second year of implementation, 6 project development objective indicators met or surpassed their targets for 2014 and progress against intermediate results indicators is also positive. Targets met or surpassed in the following areas: ■■ 42 percent (1,627) of the 3,883 Maternal and Child Health (MCH) clinics across the country were supported to reach full capacity to provide MCH services ■■ 216 Medical Officer of Health areas out of 330 have at least three health and nutrition community support groups,. ■■ 49 percent (164) of the 330 Medical Officer of Health areas have at least two functioning Healthy Lifestyle Centers, ■■ 43 percent (371) of the 855 primary health care facilities have one-month buffer stock of 16 essential NCD drugs. ■■ 94 percent of hospitals (2014) linked to the quality assurance program for laboratory tests by Medical Research Institute ■■ Nearly 30 percent of hospitals are reporting indoor morbidity and mortality data electronically in 2014. Also the project has achieved the following: National guidelines for rehabilitation services for disabled persons developed; tuberculosis case detection rate is 66 percent for 2014; guidelines for quality management units prepared and training for administration of the guidelines completed, with Quality Management Units functional in more than 30 percent of secondary care hospitals; and Implementation of the Environmental Management Framework has commenced well, with 10 hospitals progressing with the procedure of obtaining Environmental Protection Licenses and Scheduled Waste Licenses. Obtaining these two licenses ensures availability of a safe sewerage disposal system, clinical waste management, and environment cleanliness. KEY DEVELOPMENT PARTNERS: The Ministry of Health, the Ministry of Local Government and Provincial Councils, and the government of Sri Lanka. Sri Lanka Country Snapshot 21 SRI LANKA: CLIMATE RESILIENCE IMPROVEMENT PROJECT (CRIP) KEY DATES: Approved: April 22, 2014 Effective: August 7, 2014 Closing: May 30, 2019 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 152 30.38 113.77 Govt. of Sri Lanka Other Total Project Cost 152 **$ millions; as of June 30, 2015; revised amount after partial cancellation; For more information see the latest Implementation Status and Results Report ** Includes the original IDA Credit of $110m and an additional financing Credit of $42m approved March 21, 2016 . BACKGROUND AND OBJECTIVES: Climate Resilience Improvement Project (CRIP) aims to reduce the vulnerability of exposed people and assets to climate risk and to improve the government’s capacity to respond effectively to disasters. These objectives will be achieved through evidence-based investment planning and urgent risk mitigation measures. The project, comprised of an original credit of $110 million and additional financing of $42 million, has two main components. The first component ($13 million) will provide for analytical work to build a climate risk-related knowledge base in eleven selected river basins and to identifying over $ 1 billion of long term investments that will improve physical resilience to extreme hydro-meteorological events. The second component ($130 million) supports implementation of urgent climate risk mitigation interventions to increase the country’s resilience to climate risks, including rehabilitation works and risk mitigation investments necessitated by the December 2014 floods. The project also has two additional components: $7 million to support project implementation and $2 million to provide flexible funding to help the country to recover from a flood event that occurs over the course of project implementation. CRIP was approved alongside a $102 million Development Policy Loan (DPL) with Catastrophe Deferred Drawdown Option (CAT DDO) designed to increase fiscal resilience in the short term through a line of credit to be used in case of a disaster, and with associated technical assistance. KEY RESULTS ACHIEVED AND EXPECTED: A total of approximately 11.5 million people living and working in districts where these projects will be implemented are considered to be the indirect beneficiaries of this investment. The total direct beneficiaries from all the components of the project are estimated to be 450,000 spread out among 15 districts. Approximately 48 percent of the beneficiaries will be women. The key results are expected to include: ■■ The development of eleven basin investment plans that are based on an integrated understanding of climate risk are currently ongoing, with results beginning to be delivered at the end of 2016. ■■ Decrease in expected annual flood loss across 149,000 hectares (approximately 12 percent of the arable land). ■■ Some 1,220,000 fewer people at high risk to climate-related transport interruptions. ■■ Reduced landslide risk at 18 schools, serving 29,000 students. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Irrigation and Water Resources Management (MIWRM) Key Partners: This is a multi-sector project, implemented by three line ministries and four departments. The project is being implemented through the MIWRM , with support from the Ministry of Ports and Highways and the Ministry of Disaster Management. Participating implementation agencies include the Irrigation Department, the Mahaweli Authority, the National Building Research Organization, and the Road Development Authority. Japan is a key development partner under this program, which is financing the TA that support this program,through the Tokyo Hub of the Global Facility for Disaster Reduction and Recovery.. 22 SRI LANKA: DEVELOPMENT POLICY LOAN WITH CATASTROPHE DEFERRED DRAWDOWN OPTION (CAT-DDO) KEY DATES: Approved: April 22, 2014 Effective: August 17, 2014 Closing: May 30, 2019 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD 102 0.51 101.49 IDA Govt. of Sri Lanka Other Total Project Cost 102 *As of August 31, 2016 BACKGROUND AND OBJECTIVES: The CAT DDO aims to strengthen the government’s fiscal resilience to natural disasters. This will be achieved by providing immediate liquidity to the government in the event of a disaster within a policy framework designed to improve the government’s overall capacity to implement its disaster risk management program. The government will be able to access funds from the facility upon declaring a state of emergency following an adverse natural event. The funds may be drawn down over a three-year period, which may be renewed up to four times for a total of 15 years. The signing of the CAT DDO was contingent upon Sri Lanka developing a comprehensive disaster management program. The overarching goal of this project is to provide an entry point for longer-term, larger-scale investment and policy dialogue on climate and disaster resilience. While the CAT DDO will help to manage contingent fiscal risk in the short-term, technical assistance will be provided to the government to develop a series of financial instruments to manage the long term liabilities associated with disaster risk. Parallel to the risk-financing instruments, physical investments will be financed under CRIP to address both short-term system weaknesses and to increase the long-term resilience. KEY RESULTS ACHIEVED AND EXPECTED: This DPL with a CAT DDO will facilitate three key prior actions needed to operationalize the Sri Lanka Disaster Management Policy and National Disaster Management Plan (NDMP), and will, in addition, foster improved data sharing within and outside government as a key tool for better disaster risk management. The prior actions are: ■■ Improved Institutional Capacity for Disaster Risk Management and Disaster Risk Financing and Insurance (DRFI). This is being achieved by the first prior action: the adoption of a national policy and program on the management of disasters. This will be measured through the: (i) completion of fiscal disaster risk assessment; (ii) development of a national DRFI strategy; and (iii) issuance of a government circular on use of policies and guidelines on physical planning, resettlements, and local governance for disaster risk management. ■■ Increased capacity to ensure climate resilient development. This will be achieved by the second prior action: the approval of the National Disaster Man- agement Plan. This will be measured through: (i) nine basin-wide risk mitigation investment plans; (ii) guidelines issued on slope angles in new road construc- tion; and (iii) approval of a national monitoring framework to measure implementation of the Comprehensive Disaster Management Plan. ■■ Improved application of disaster information in policy making and development planning. This will be achieved by the third prior action: approval of the proposal to establish a steering committee to monitor the national program for the common use and sharing of spatial data and information. This will be measured through: (i) a geospatial-data-sharing platform established to share disaster risk information among relevant stakeholders; (ii) disaster risk profiles available at a national level and shared; and (iii) line ministries and agencies accessing the data-sharing platform. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Finance and Ministry of Disaster Management. Key Partners: This is a multi-sector project, being implemented by three line ministries and four departments. The project is being implemented through the Ministry of Finance and Planning, and the Ministry of Disaster Management. Japan is a key development partner under this program. The Data Risk Financing and Insurance program that supports this program is financed by the government of Japan through the GFDRR Tokyo Hub. Sri Lanka Country Snapshot 23 SRI LANKA: ECOSYSTEM CONSERVATION AND MANAGEMENT PROJECT KEY DATES: Approved: April 25, 2016 Effective: Project is not yet effective Closing: June 30, 2021 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 45 Govt. of Sri Lanka Other Total Project Cost 45 *As of June 30, 2015; revised amount after partial cancellation; For more information see the latest Implementation Status and Results Report (Cambria 9, italics; remember to hyperlink to project page) BACKGROUND AND OBJECTIVES: ■■ Sri Lanka exhibits a wide array of ecosystems with a diversity of species considered to be the richest per unit area in the Asian region. About 14 percent of Sri Lanka’s land area is under legal protection. Despite conservation efforts, deforestation, forest degradation and biodiversity loss continue. HEC is a noteworthy issue in the context of Sri Lanka’s development. Sri Lanka has the highest density of elephants among the Asian elephant range states. With accelerating develop- ment and fragmentation of habitats, innovative landscape management approaches are needed to address the human-elephant conflict. Such approaches would balance competing objectives of creating new opportunities for rural poverty reduction and employment and sustaining Sri Lanka’s unique elephant population over much of the Dry Zone. Sri Lanka’s biodiversity and natural resources endowments are important assets for future sustainable development. Many communi- ties living in the vicinity of natural forests are directly and indirectly dependent on the natural ecosystems. ■■ Nature-based tourism is a fast growing segment of the global tourism industry creating opportunities for growth and to develop a successful rural development growth strategy. Due to the ease of wildlife sighting, Sri Lanka has the potential of being the best nature-based tourism destination outside Africa. Yet nature- based tourism remains underexploited. Less than 30 percent of foreign tourists visit the country’s national parks due to poor visitor experience as a result of inadequate management. Much of the sector operates as an enclave industry, generating little employment and growth benefits. Only limited portion of the monetary benefits from nature-based tourism flow to local communities. ■■ The country’s development framework commits Sri Lanka to a path of sustainable development and identifies the country’s biodiversity as part of its natural heri- tage and a high conservation priority. It has been recognized that the long-term sustainability of the environment and natural resources depends on their ability to provide benefits to people and the country. This includes the need to mobilize financing and revenue generation from sustainable use of the natural resources, such as nature-based tourism, payment for ecosystem services, and others. ■■ The project objective is to improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits Therefore, the project will also contribute to the Government’s policies of: increasing forest cover; harnessing of ecosystem benefits; including the protection of watersheds for agricultural productivity; developing mechanisms for human-elephant co-existence; improving the revenue generating capability of wildlife and forest re- sources; and developing the capacity for delivering institutional mandates of key natural resources management agencies. The project contributes to the higher level objective of long-term environmental sustainability and inclusiveness of growth and development in and around ecologically sensitive areas in Sri Lanka. KEY RESULTS ACHIEVED AND EXPECTED: The project was signed on September 5, 2016 The following are among the key results expected to be achieved by the project: ■■ Direct benefits to at least 15,000 people from communities living adjacent to Protected Areas due to sustainable use and management of natural resources ■■ At least 10,000 people from communities living adjacent to Protected Areas with improved access income generating activities ■■ At least 75 villages and agriculture plots protected as a result of human-elephant co-existence activities ■■ 200,000ha of land (and water) brought under enhanced biodiversity protection ■■ 10% increase in visitor revenue of selected Protected Areas as a result of project interventions KEY DEVELOPMENT PARTNERS: Implementing Agency: The project is led by the Ministry of Mahaweli Development and Environment with the participation of Ministry of Sustainable Development and Wildlife, Forest Department and Department of Wildlife Conservation Key Partners: Project is closely collaborating with the Forest Department led strategy development for Reducing Emissions from Deforestation and Forest Degradation (REDD+) supported by UNDP and FAO and Community Forestry Project financed by the Government of Australia through UNDP. The project is expected to build collaboration and complementarity with UNDP/GEF financed Enhancing Biodiversity Conservation and Sustenance of Ecosystem Services in Environmentally Sensitive Areas and GTZ financed support to Department of wildlife Conservation in the bufferzones of Wilpattu National Park. 24 SRI LANKA: NORTH EAST LOCAL SERVICES IMPROVEMENT PROJECT KEY DATES: Approved: May 13, 2010 Effective: December 15, 2010 Closing: December 31, 2016 FINANCING IN MILLION US DOLLARS: Financier Financing Disbursed Undisbursed IBRD IDA 70.00 64.42 6.20 Govt. of Sri Lanka 14.00 14.00 Australia- Department of Foreign Affairs and Trade 20.30 20.30 Total Project Cost (original) 104.30 98.72 6.20 BACKGROUND AND OBJECTIVES: The destruction to village level infrastructure facilities and services due to the conflict in the Northern and Eastern Provinces were considerable. Rural roads that provide inter-connectivity and village level infrastructure such as drainage systems, primary health clinics, schools and markets were severely damaged. Most urban, peri-urban and rural drinking water schemes were in severe disrepair and needed a full reconstruction. A large number of public services such as street lighting, solid waste collection and library facilities were also completely damaged. The project was designed to improve the delivery of local infrastructure services by local authorities in the Northern and Eastern Provinces in an accountable and responsive manner. More specifically, the project aims to: (i) improve the quantity and quality of public goods delivered and maintained by local authorities; (ii) ensure that local authorities undertake public expenditures and deliver local services in a transparent and accountable manner; (iii) strengthen service delivery systems and build the capacity of local authorities to deliver their mandated services, as well as strengthen the monitoring capacities of the provincial and national level institutions; (iv) establish a comprehensive monitoring system, evaluate technical and social audits and prepare citizen scorecards and other needed analysis; and (v) support the key agencies at the central, provincial and local levels that are involved in the day-to-day management of the project to procure necessary consultant, equipment and operational support for the smooth implementation of the project. KEY RESULTS ACHIEVED AND EXPECTED: ■■ 684km of inter-connective rural roads, 53 km of flood storm drainages, four rural water supply schemes, 477 common assets (such as markets, parks, playgrounds and cemeteries), and 50 km nine rural electrification have been completed. ■■ 70 percent of capital grants released against allocations. ■■ 87 percent increased satisfaction of local people regarding local authorities. ■■ 90 percent of local authorities preparing annual financial statements within three months of closure, and 75 percent acceptable financial audits of accounts. ■■ 100 percent of local authorities with budgets prepared in a participatory manner, and 100 percent of local authorities whose revenues, expenditures and procure- ment decisions are publically disclosed. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Provincial Councils and Local Government, Northern Provincial Council, Eastern Provincial Council, North Central Provincial Council, North Western Provincial Council and Uva Provincial council Key Partners: DFAT, Civil Society Organizations and Citizens. Sri Lanka Country Snapshot 25 SRI LANKA: METRO COLOMBO URBAN DEVELOPMENT PROJECT KEY DATES: Approved: March 15, 2012 Effective: July 10, 2012 Closing: December 31, 2017 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD 213 83.32 129.68 IDA Govt. of Sri Lanka 108 Other Total Project Cost 321 *$ millions; as of June 30, 2015; revised amount after partial cancellation; For more information see the latest Implementation Status and Results Report (Cambria 9, italics; remember to hyperlink to project page) BACKGROUND AND OBJECTIVES: ■■ Sri Lanka needs to tap into the competitive advantages of the Colombo Metropolitan Region (CMR) to accelerate growth. The CMR will continue to generate much of the capital, human resources, technology and services needed for growth in the rest of the country. While the CMR covers only about 6 percent of the country’s total land area and is home to 28 percent of its population, it accounts for about 45 percent of national GDP and 80 percent of industrial value added. It is the country’s major urban agglomeration and is growing faster than any other metropolitan region in Sri Lanka. ■■ A number of obstacles are preventing the CMR from realizing its full economic potential. These include: inadequate infrastructure and services; significant vulnerability to flooding, the impacts of which are being exacerbated by climate change and sea-level rise; and poorly design and maintained drainage. In addi- tion, limited financial and human resources available to local authorities, combined with their lack of coordination, hinder effective delivery and operations and maintenance of local infrastructure services. Integrated planning, management and coordination at the metropolitan level are virtually nonexistent. ■■ The project aims to support the government in reducing flooding in the catchment of the Colombo Water Basin and strengthen the capacity of local authorities in the CMR to rehabilitate, improve and maintain local infrastructure and services through selected demonstration investments. ■■ The following results are anticipated from the project: (i) reduction in the area under risk of flooding (25-28-year return period) in the project area; and (ii) a 20 percent increase in the total urban roads maintained by the project’s local authorities that are in good and fair condition (indicating improved capacity of local authorities in operation and maintenance of critical municipal infrastructure). ■■ These infrastructure and quality of life improvements means that CMR will be better prepared for the future and will help protect the region’s increasing popula- tion, natural environment and infrastructure.. KEY ACHIEVEMENTS: ■■ Early intermediary results achieved included improved coordination between central agencies and local authorities and among local authorities within the metro- politan area, and institutionalization of metropolitan-level coordination agencies, such as the Metropolitan Wetland Management Department and the Colombo Metropolitan Unit of the Urban Development Authority. ■■ Component 2 (municipal infrastructure) has been completed and contributed to on-the-job capacities of local authorities in CMR, particularly in the areas of procure- ment, contract management for municipal roads, coordination with utilities, use of high quality design, and quality and safety standards of municipal roads. ■■ Key achievements to date include: the 3 km of primary canals have been completed, 2 micro-drainage subprojects have been implemented, and 29 km of roads that have been built or rehabilitated based on prescribed standards. The newly opened Beddegana Wetlands Park aids in flood control and allows the public to experience the city’s unique urban wetlands. In addition, the project rehabilitated the Town Square and Viharamahadevi Parks, which included the creation of playgrounds, bicycle paths and public facilities. ■■ Up to date, the project has increased the city’s walkability, safety and quality of life for both pedestrians and motorists as the road redesigns have included pedestrian crossings, disabled friendly access as well as flood mitigation measures such as sloping road profiles and side drainage. ■■ The largest and most complex flood-reduction works (both from an engineering and safeguard point of view) are currently under way. This work will include build- ing and maintaining a system of drainage, tunnels, canal construction and rehabilitation, flood gates, pumping stations and water diversion. It will also support a flood management system to maintain the drainage network. The major technical assistance and feasibility studies have been completed. The status of civil works contracts varies but all are expected to be awarded by the end of FY17. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Megapolis and Western Province, Sri Lanka Key Partners: Ministry of Megapolis and Western Province; Sri Lanka Land Reclamation and Development Corporation; Urban Development Authority; Colombo Municipal Council; Dehiwela Mount Lavinia Municipal Council; Kotte Sri Jayawardenapura Municipal Council; and the Kolonnawa Urban Council. 26 SRI LANKA: STRATEGIC CITIES DEVELOPMENT PROJECT KEY DATES: Approved: May 5, 2014 (original); Additional Financing (AF): May 28, 2016 Effective: October 16 2014; AF: expected October 2016 Closing: December 31, 2019; AF: December 31. 2021 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 202 19.80 123.83 Govt. of Sri Lanka 53.58 Other Total Project Cost 255.58 *As of August 31, 2016 BACKGROUND AND OBJECTIVES: Government of Sri Lanka, through Bank Technical Assistance (TA) support, initiated its national secondary cities development program in 2012, to tackle key development constraints in its secondary cities nationwide. Among various donors, the Bank was the first to take up the initiative through the preparation and delivery of the Sri Lanka Strategic Cities Development Project (SCDP), which was approved in May, 2014 with a $147 million IDA credit. The SCDP focused on improving integrated urban services and public spaces in two key secondary cities in Sri Lanka- Kandy in the central part of the country and Galle, in the Southwest of the country. The AF of the SCDP was discussed and agreed upon with the Government of Sri Lanka in order to expand the SCDP to a major city center in the Northern part of the country- Jaffna. Jaffna has severely suffered from the three-decade civil conflict in the country and is in great need of improvement of its municipal services and infrastructure assets. The AF is a US$55 million IDA credit and includes four sub-components: Drainage and water retention ponds improvement, culture heritage and public spaces improvement, road connectivity improvement, and capacity building of Jaffna Municipal Council and support of strategic TAs. KEY RESULTS ACHIEVED AND EXPECTED: Key results expected to be achieved include improved urban services in Kandy, with 320,000 people expected to benefit from improved basic services by the end of the project, improved urban services in Galle, and a reduction in area at risk of flood inundation within the designated project area in Galle (10-year return period flood for major canals and 5-year return period for local drainage; and access to enhanced public urban spaces in Kandy and Galle, through new or rehabilitated urban public spaces and pedestrian sidewalks and pathways. Under the AF, key results expected include direct beneficiaries of Jaffna Municipal Council area residents benefiting from improved basic services, new or rehabilitated urban public spaces (including culture heritage assets), roads rehabilitated, cycle lanes and pedestrian paths rehabilitated or constructed, and storm water drainage and water retention ponds reinstated or rehabilitated. KEY DEVELOPMENT PARTNERS: Implementing Agency: Ministry of Megapolis and Western Development and Jaffna Municipal Council (as partner agency) Key Partners: To realize the vision of a system of cities, Sri Lanka has initiated a national-level program – the Strategic Cities Program – to manage the development of strategic cities and ensure a consistent and coherent approach. The Bank and government have embarked on the first and second phase initaitives to support this program – the original SCDP focuses on Kandy and Galle, and the recently approved AF on Jaffna. The ADB is preparing for integrated urban development for Trincomalee, and AFD is finalizing their support for Anuradhapura.. Sri Lanka Country Snapshot 27 SRI LANKA: TRANSPORT CONNECTIVITY AND ASSET MANAGEMENT PROJECT KEY DATES: Approved: May 9, 2016 Effective: Has not yet been made effective Closing: June 30, 2026 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 125 Govt. of Sri Lanka Other Total Project Cost 125 *$ millions; as of June 30, 2015; revised amount after partial cancellation; For more information see the latest Implementation Status and Results Report (Cambria 9, italics; remember to hyperlink to project page) BACKGROUND AND OBJECTIVES: The project is designed to support modern road asset management in the RDA. It focuses on creating an enabling environment for more effective asset management and includes interventions to develop systems and capacity within the RDA and the industry. It will demonstrate the implementation of asset management principles in selected priority road corridors of the national road network. The project will particularly focus on the institutional and system changes that are necessary to transform the RDA from a provider of infrastructure to a service provider in line with the ambition and needs of a middle-income country. The asset management contract representing the Design-Build-Maintain-Operate-Transfer (DBMOT) methodology through the use of an OPRC format is being piloted on a selected corridor to meet this overarching objective. It comprises of two components: Institutional strengthening and capacity building for Asset Management and Piloting the implementation of road asset management principles. KEY RACHIEVEMENTS EXPECTED: ■■ The PMU has been staffed, all of the systems and procedures necessary for the implementation of the project is in place. The initial preparatory work for the OPRC contract has also been carried out. ■■ The internal clearances for procurement of consultancy and OPRC contract is being carried out for commencement of procurement after the project has been made effective. Successful piloting of the DBMOT contract over the period of the project. Carry out system and institutional changes in the RDA necssary for a modern organization that supports effective asset management. KEY DEVELOPMENT PARTNERS: Implementing Agency: The Road Development Authority Key Partners: The Asian Development Bank 28 SRI LANKA: DAM SAFETY AND WATER RESOURCES PLANNING PROJECT KEY DATES: Approved: March 27, 2008 Effective: June 26, 2008 Closing: May 15, 2018 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA** 148.33 97.31 61.02 Govt. of Sri Lanka 6.33 Other Total Project Cost 154.66 *As of August 31, 2016; **includes Additional Financing in the amount of $83 million equivalent approved May 5, 2014. BACKGROUND AND OBJECTIVES: ■■ Dams are part of essential infrastructure to store water for Sri Lanka’s irrigation, hydropower, and domestic and industrial water supply needs, as well as to provide flood control. At present, about 85 percent of the developed water resources are used for irrigation in the dry zone, which covers nearly two-thirds of the country. The dam network in Sri Lanka comprises over 270 medium and 80 large dams. Due to lack of maintenance over time, the dams pose an escalating public safety threat. Many large dams are ageing and suffer from various structural deficiencies and shortcomings in operation and monitoring facilities, requiring urgent attention. ■■ The project development objectives of the project are to: (i) establish long-term sustainable arrangements for the operation and maintenance (O&M) of large dams; and (ii) improve water resources planning KEY RESULTS ACHIEVED AND EXPECTED: ■■ The original credit of the project was fully disbursed and closed at the end of June 2015. ■■ Remedial works in thirty dams have been completed. Of the remaining 33 dams to be rehabilitated, work is in progress in 21 (as of July 31, 2016). Procurement is scheduled for completion for the remaining 12 dams by September 2016, and all works are projected to be completed by December 2017. ■■ The institutional arrangements for a National Dam Safety Program has been approved by government. Staffing requirement has also been approved, but transfer of staff to the secretariat and recruitment is yet to happen. Office space has been identified to house the Secretariat. Scanning of all important documents and drawings related to the large and medium dams continues as part of the development of an e-library. It is expected that the Center will be operational by Janu- ary 2017. ■■ A total of 120 stations have been completed and are transmitting data to the two centers. 41 additional hydro-meteorological stations are being installed. Data validation is ongoing, and work is underway for utilizing the data gathered. ■■ Three plans namely, the National Water Use Master Plan, Mahaweli Water Development Plan (updated), and the Mundeni Aru River Basin Plan were prepared under the project. They have been submitted to the Cabinet for obtaining necessary approvals KEY DEVELOPMENT PARTNERS: Implementing Agency: Irrigation Department and Mahaweli Authority of Sri Lanka. Key Partners: Ceylon Electricity Board, Irrigation Department, Mahaweli Authority of Sri Lanka, Northern Provincial Council, Water Resources Board and Water Supply and Drainage Board Sri Lanka Country Snapshot 29 SRI LANKA: WATER SUPPLY AND SANITATION IMPROVEMENT PROJECT KEY DATES: Approved: June 24, 2015 Effective: Expected September/October 2015 Closing: December 31, 2020 FINANCING (in million US Dollars)*: Financier Financing Disbursed Undisbursed IBRD IDA 165 9.8 155.2 Govt. of Sri Lanka 5 Other: Communities 13.9 Total Project Cost 183.9 *As of June 30, 2016 BACKGROUND AND OBJECTIVES: Since 2000 the Government has set out a range of policies covering all aspects of the water and sanitation sector which, taken together, provide a sound framework within which the sector operates. The Government’s vision for the water sector is to provide access to safe drinking water for all citizens over the medium term (by 2020) with a particular emphasis on increasing the quality of service (increasing the proportion of people served through piped water connections to 60 percent and tripling coverage by sewerage systems to 7 percent). The government also envisages a sector with improved institutional performance where tariffs are set to ensure cost recovery, and regulatory reforms are introduced, so that there can be greater self-financing of capital works through innovative financing structures. In rural areas there will be a continued focus on community involvement in water supply and greater collaboration between the various actors in the sector including the National Water Supply and Drainage Board (NWSDB) and the local authorities. The development objectives of the project are to increase access to piped water services and improved sanitation in selected districts; and to strengthen the capacity of associated institutions. KEY ACHIEVEMENTS: The project, which became effective in December 2015, is expected to deliver the following key results: ■■ Urban water and sanitation – 6 water supply schemes + 7 septage treatment facilities ■■ Rural water supply and sanitation – approx. 320 new water schemes ■■ Estates sector water supply and sanitation – approx. 130 schemes + 7,500 latrines ■■ Institutional support to: strengthen capacity/operationalise Department of National Community Water Supply; enhance CBO performance; strengthen other institutions ■■ Monitoring & Evaluation (M&E) system development to monitor CBO performance ■■ Strategic investment program for NWSDB ■■ Water quality mapping + CKDu (Chronic Kidney Disease of Unknown Etiology) support KEY DEVELOPMENT PARTNERS: Implementing Agencies: Ministry of City Planning and Water Supply Key Partners: Ministry of Hill Country New Villages, Infrastructure and Community Development; Plantation Human Development Trust