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Sri Lanka Has the Potential to More Than Double Its Exports to South Asia

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If trade barriers are overcome, trade within South Asia can increase three-fold, from $23 billion to $67 billion, suggests a new World Bank report. Sri Lanka has the potential to more than double its exports to South Asia. Increased intraregional trade will provide a greater variety of goods and services at cheaper prices for Sri Lankan consumers, better access to inputs for producers and exporters, increased investment, export diversification and growth.

South Asia is the world’s most rapidly growing region. It is also the world’s least integrated region. Man-made trade barriers have hampered intraregional connectivity and kept South Asian countries from maximizing their prospects. Trade within South Asia accounts for only 5 percent of the region’s total trade, compared for 50 percent in East Asia and the Pacific. Sri Lanka’s exports to South Asia are equivalent to only 11 percent of its global exports.

The report, A Glass Half Full: The Promise of Regional Trade in South Asia, launched today, highlights four critical obstacles to regional trade – border tax distortions, nontariff barriers, connectivity costs, and trust deficits – and offers options for policymakers to address them.

The report helps to quantify commonly known benefits associated with a more integrated South Asia. For example, the actual value of Sri Lanka’s exports to South Asia is $1.2 billion, but the potential value is $2.8 billion. This $1.6 billion gap between the two is equivalent to 15 percent of Sri Lanka’s total global exports. Closing the gap will not only enhance but also help diversify Sri Lanka’s trade.

“Sri Lanka is brimming with possibilities for greater regional integration,” says Dr. Idah Pswarayi-Riddihough, World Bank Country Director for Sri Lanka and the Maldives. “Trade barriers and insufficient connectivity to the region are preventing Sri Lanka from maximizing the benefits of its proximity to South Asia.”

In addition to tariffs, para tariffs such as port and airport development levy and cess create an anti-export bias. Para tariffs more than double the average import tariff in Sri Lanka. Additionally, 44 percent of Sri Lanka’s imports are not provided concessional treatment under the South Asia Free Trade Agreement. And about 23 percent of its exports to South Asia suffer from the same non-concessional treatment. Non-tariff measures further increase the cost of imports.

Limited air connectivity with South Asia also raises the cost of trade, particularly in services. One success story is air services liberalization between India and Sri Lanka. Increased air connectivity between the two countries since 2003 has lowered costs, and increased passenger traffic and the volume of air cargo. There are now 147 weekly flights between Sri Lanka and India, and since 2005 India has been the biggest source of tourist arrivals in Sri Lanka. The number of Indian tourists tripled from 113,323 in 2005 to 356,729 in 2016, as a result.

“Air services liberalization between Sri Lanka and India serves as a potent example for the rest of South Asia,” says Sanjay Kathuria, World Bank Lead Economist and lead author of the report. “Given the region’s complicated history, size asymmetries, and a trust deficit, policy shifts need to be implemented gradually. Air services liberalization entailed small steps backed by persistence which cumulatively made a substantial impact.”

Recommendations provided in the report include targeting sensitive lists and para tariffs to enable real progress on SAFTA. It also calls for a multi-pronged effort towards addressing non-tariff barriers, focusing on information flows, procedures, and infrastructure.

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A New Boost for Fiscal Federalism in Nepal

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World Bank Country Manager for Nepal, Faris H. Hadad-Zervos, and Secretary, Lal Shanker Ghimire during the project signing. Photo: Akash Shrestha/World Bank

The World Bank has renewed support to the Government of Nepal to strengthen the country’s efforts towards fiscal federalism and improving public financial management under the Second Programmatic Fiscal and Public Financial Management Development Policy Credit Project. The $100 million project is geared towards the accomplishment of reform actions coordinated by the Ministry of Finance which was built on reforms supported under the first Development Policy Credit project. The agreement was signed today at the Ministry of Finance by Secretary, Lal Shanker Ghimire and the World Bank Country Manager for Nepal, Faris H. Hadad-Zervos.

“We are thankful for the support of the World Bank and development partners in the ongoing and dynamic process of federalism in Nepal,” stated Secretary Lal Shanker Ghimire. “Coordination and capacity are one of the primary pillars for the success of Nepal’s three-tier government and it is important we build accountability with responsibility in our pursuance of the country’s development objectives.”

This project supports reforms to advance Nepal’s federalism agenda, under two pillars. The first pillar supports measures to establish fiscal federalism through various legislations, policies and regulations. An umbrella legislation, enacted at the federal level, will guide budget execution and improve the accounting and financial reporting framework, and will form the basis of model laws to be adopted by local governments, to govern their budget processes.

The second pillar supports reforms to strengthen the policy framework for public financial management at the subnational levels. This will be achieved through legislation and regulations that govern the budget cycle and promotes transparency and accountability to citizens, guides preparation of the Medium-Term Expenditure Framework, strengthens expenditure control, and supports the development of a revenue collection system. These reforms also include gender responsive budgeting, and measures to address Nepal’s vulnerability to climatic shocks and improve disaster risk management.

“Nepal’s transition to a federal state is an ambitious agenda and the World Bank Group is committed to support the government in fulfilling this goal,” stated Faris H. Hadad-Zervos, World Bank Country Manager for Nepal. “The sustainability of the proposed reforms under this budget support is a critical aspect. The partnership between the government and development partners will further enable strengthening of public institutions, inclusion and resilience as Nepal progresses with the federalism agenda.”

This project builds on the reforms supported by the first Development Policy Credit to establish the legal frameworks to govern resource allocation across the three tiers of government and guide operations of local governments. It also supported measures to strengthen budget execution and public financial management systems at the federal level.

Nepal’s transition to a federal state aims to bring services closer to the people and to increase the government’s effectiveness in the delivery of social and infrastructure services.

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Energy News

IRENA and RES4Africa Partner to Accelerate Renewables in Africa

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IRENA and the RES4Africa Foundation have agreed to cooperate to increase the speed of renewable energy development in Africa in the pursuit of the continent’s sustainable development and climate goals. The ‘Letter of Intent’ signed on 15 July 2019 in Rome, will see the two parties work together to explore public-private initiatives, knowledge creation opportunities, capacity building programmes and strategic dialogues to accelerate renewable energy deployment in Africa.

With more than 620 million Africans – nearly half the continent’s population – still without access to electricity, the RES4Africa Foundation works to address the water-energy-food nexus and promote the adoption of renewable energy in Africa. IRENA estimates the continent could meet nearly a quarter of its energy needs from indigenous and clean renewable energy by 2030, but to realise this potential a step-up in renewable energy action is necessary.

“To achieve the sustainable development goals and tackle climate change we must grow the share of global energy supplied by renewables to 50 per cent by mid-century,” said Francesco La Camera, Director-General of IRENA during the signing event. “That requires a significant scale up of renewable energy deployment. Stronger partnerships can accelerate the energy transformation lifting millions of people in rural villages across Africa out of energy poverty and delivering socioeconomic outcomes.”

Growing engagement in Africa

IRENA’s engagement with Africa on renewables dates back to the Agency’s formation nearly a decade ago. A key component of IRENA’s engagement and its effort to promote regional market integration in Africa, has been through the development of the Clean Energy Corridors. IRENA’s work informed the objectives of the African Renewable Energy Initiative (AREI), which now targets to develop 300 gigawatts of renewable energy capacity across the continent by 2030.

IRENA analysis suggests a transformation of Africa’s energy sector with renewables by 2030, would result in carbon-dioxide emission reductions of up to 310 megatonnes per annum and create millions of jobs across the continent.

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EU Politics

Ursula von der Leyen presents her vision to MEPs

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Ursula von der Leyen outlined her priorities as Commission President © European Union 2019 – EP

In a debate with MEPs, Ursula von der Leyen outlined her vision as Commission President. MEPs will vote on her nomination, held by secret paper ballot, at 18.00.

Ursula von der Leyen outlined her political priorities, if elected as Commission President, to MEPs in Strasbourg this morning.

Here is a selection of the topics she mentioned during her speech.

Having identified the collective need for “a healthy planet as our greatest challenge and responsibility”, Ms von der Leyen proposed bolder emissions targets, with a reduction of 50% to 55% by 2030 and committed to submit a plan for a “Green Deal for Europe” and a European Climate Law within her first 100 days in office. She also announced plans for sustainable European investment (also through the partial conversion of EIB funds into a “climate bank”) to provide €1 trillion in investments within a decade.

Ms von der Leyen also stressed that the EU must establish an economy that serves the people. In order for this to happen however, “everyone needs to share the burden” – including those tech giants that conduct their business (and should continue to do so) in Europe, yet do not repay the people of Europe for their access to EU human and social capital.

Reiterating her commitment for a gender-balanced College of Commissioners during her term, she also highlighted that violence against women has to be tackled decisively; she would therefore seek to define violence against women as a crime in the European treaties, in parallel to completing the EU’s accession to the Istanbul Convention.

Ms von der Leyen declared her commitment to rule of law as a European value, announcing that she intends to establish an EU-wide monitoring mechanism in parallel to existing measures. She emphasised that these European values also include a duty to save lives at sea and should translate into a humane border policy. She stated her support for a “new pact on migration & asylum” and Dublin Regulation reform, adding that she intends to ensure that Frontex border guards number 10,000 not by 2027, but by 2024, and that all countries should shoulder their fair share of the burden based on the principle of European solidarity.

On the matter of European democracy, Ms von der Leyen announced a two-year Conference for Europe as of 2020, in which citizens will take a leading and active role. She also emphasised the need for the Spitzenkandidaten system to be strengthened and that transnational lists should be reconsidered in future European elections. She also declared her full support for a right of initiative for the European Parliament, committing to put forward a legislative proposal in response to every resolution that is passed with a majority of Parliament’s constituent members.

Reactions from political groups

Manfred Weber (EPP, DE) confirmed his group’s support for Ms von der Leyen. “We stand for a Europe that is fair, modern and innovative, secure, open-minded and ecological. We will implement these pledges together with her.” He welcomed her proposals for a right of initiative for the EP and to improve the lead candidate process, saying, “Backroom deals must be a thing of the past.”

Iratxe García Pérez (S&D, ES) complained that “European democracy is progressing way too slowly” and underlined that Ms von der Leyen must give further details on how she plans to respond to citizens’ demands, and particularly youth, before the S&D decides whether or not to back her. Support for sustainable growth, stronger action to fight poverty, and a binding strategy for gender equality are essential, García added.

Dacian Cioloș (Renew, RO) said, “We can no longer disappoint the millions of Europeans who said YES to Europe. They expect the EU to defend the rule of law without hesitation”. His group is ready to support her, with one goal: the renewal of Europe. “But, above all, we expect from you real pro-European leadership. Europe is not an administration, but a political ambition”, he said.

Philippe Lamberts (Greens/EFA, BE) said that his group was not ready to hand over the helm of the European Union to Ursula von der Leyen at a time when ‘‘our common house is burning, the climate is deteriorating, there are ever deeper inequalities and a backlash in fundamental freedoms and the rule of law”. However, if elected, his group was ready to provide its support “whenever the proposals would be up to the existential challenges we face”.

Jörg Meuthen (ID, DE) announced that his group will vote against her, stating that she is unfit for the job and that she had no convincing vision for Europe. He criticised her for promising too many different, contradictory things to groups in order to secure support, e.g. regarding the rule of law or migration.

Raffaele Fitto (ECR, IT) asked Ursula von der Leyen to clarify her position on “the mechanism on the rule of law, on which we are at odds” with the policy pursued so far by the Commission. Regarding the fight against climate change, he said he was “happy for proposals such as the transition fund and the bank for sustainable investments, but we discuss increasingly ambitious targets, without saying how to achieve them”.

Martin Schirdewan (GUE/NGL, DE) said that his group will not vote for Ms von der Leyen. Voters expected a lead candidate as Commission President, he claimed, not a Minister of Defence, which is a signal “for the continued militarisation and isolation of the EU.” He called for austerity policies to end and for investment in social security, education, healthcare and fighting climate change.

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