The latest edition of the World Bank’s Sri Lanka Development Update (SLDU) finds the island in a challenging macroeconomic landscape. The post-conflict high growth momentum has decelerated. A volatile global environment and structurally weak competitiveness continue to weaken growth and external sector performance. High interest costs mask limited fiscal improvement.
The report’s special focus examines the challenges associated with a change in demographic composition and suggests that a multi-year program of policy reforms and institutional strengthening could help prepare Sri Lanka for the decades ahead.
The SLDU, which analyses key developments in Sri Lanka’s economy over the past six months, notes that while post-conflict growth has decelerated, the outlook remains stable, conditional on political stability and reform implementation.
Sri Lanka is stepping up to the plate at a time when the global environment remains turbulent. Key reforms, such as the implementation of the Inland Revenue Law, passing of the Active Liability Management Act, are helping to prepare for heightened external debt refinancing risks in 2019 and beyond.
“It is important to consolidate on previous reforms to ensure maximum benefits,” says Fernando Im, an author of the SLDU and the senior country economist for Sri Lanka-Maldives. He explains that future reforms could yield high development impacts, such as further strengthening public finance management and supporting the implementation of a social registry to improve coverage and targeting of social safety nets.
Below are some of the recent developments highlighted in the report:
Sri Lanka’s debt portfolio carries significant risks
At an estimated 83 percent of its Gross Domestic Product, Sri Lanka’s central government debt level is high. As the country approached upper middle-income status, it has been borrowing on more commercial terms with increased cost and risk.
The majority of foreign currency denominated debt is now largely made up of market borrowings including International Sovereign Bonds (ISBs) and Sri Lanka Development Bonds (SLDBs), which in 2017 accounted for 53 percent, up from just 3 percent of total foreign currency denominated debt in 2000.
In total, maturities of bullet repayments on Eurobonds from 2019 to 2023 and from 2025 to 2028 alone amount to USD 12.15 billion. The SLDU notes that this is new territory for the country and could expose the island nation to refinancing risks.
In response, the government has adopted policies designed to address these risks, however, the slow progress of key structural reforms remains a cause for concern. It is hoped that improvements in debt management will help manage costs and risks of the portfolio, develop the domestic financial market and improve access to finance.
Despite the fast poverty reduction, there remain areas with significant poverty
Over the past two decades, Sri Lanka’s economy expanded at a rapid pace and the country has done much to address extreme poverty with a decline from 15.4 percent in 2013 to 9.7 percent in 2016, as measured against the World Bank’s international poverty line of $3.20 per day for lower middle-income countries.
Measures, such as the expansion of the Samurdhi programme in 2015, offered dividends although better targeting of social assistance would have resulted in larger gains. However, it is vital to note that a large number of people remain just a small shock away from falling back into poverty, says the report, noting that adverse weather conditions have become increasingly influential in recent years.
Critically, there is a disparity between various districts, with the highest poverty headcount being reported in the Northern and Eastern provinces, where regions like Ratnapura, Kandy and Badulla account for more than a quarter of the poor population combined. It is clear, Sri Lanka must design different strategies to address the varied issues around human capital, basic services, the availability of jobs and access to markets.
Sri Lanka is undergoing profound demographic change – the country needs to do more to prepare
Like many other countries in the world, Sri Lanka is staring down a dramatic demographic shift – Sri Lanka’s share of working-age population peaked in 2005 and it is expected to gradually decline over time. This has implications for labor supply, service delivery in sectors such as health and education, and of course for pensions, employment and public finances overall.
A particular concern are the limited savings and instructional support mechanisms in place to support this rapidly expanding elderly population. Increasing costs mean that programs such as the Public Servants Pension Scheme (PSPS) could struggle to deliver on their benefit promises over the long run, while the EPF – the employer-based defined contribution saving scheme for formal private sector workers – appears inadequate to meet the costs associated with over two decades of retirement.
As can be expected formidable challenges exist, but improving various aspects of delivery systems will prove critical to broadening worker coverage. By prioritising educational attainment, addressing the skills mismatch that hurts new graduates in the market, and nurturing entrepreneurship, younger people could be encouraged to participate in the workforce. Finally, improving female labour force participation could also help buffer the adverse impacts of demographic factors on growth.
African fisheries need reforms to boost resilience after Covid-19
The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.
These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.
The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.
Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.
Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.
The report strongly advocates for:
– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.
– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.
– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.
– Investing in human capital to ensure high-level skills in the different areas of fisheries management.
– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.
The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.
Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.
Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.
Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.
Top Trends Impacting Global Economy, Society and Technology
The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.
Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.
“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.
“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”
The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.
- Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
- Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
- Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
- Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.
In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.
South Asian Economies Bounce Back but Face Fragile Recovery
Prospects of an economic rebound in South Asia are firming up as growth is set to increase by 7.2 percent in 2021 and 4.4 percent in 2022, climbing from historic lows in 2020 and putting the region on a path to recovery. But growth is uneven and economic activity well below pre-COVID-19 estimates, as many businesses need to make up for lost revenue and millions of workers, most of them in the informal sector, still reel from job losses, falling incomes, worsening inequalities, and human capital deficits, says the World Bank in its twice-a-year regional update.
Released today, the latest South Asia Economic Focus: South Asia Vaccinates shows that the region is set to regain its historical growth rate by 2022. Electricity consumption and mobility data is a clear indication of recovering economic activity. India, which comprises the bulk of the region’s economy, is expected to grow more than 10 percent in the fiscal year 2021-22—a substantial upward revision of 4.7 percentage points from January 2021 forecasts.
The outlook for Bangladesh, Nepal, and Pakistan has also been revised upward, supported by better than expected remittance inflows: Bangladesh’s gross domestic product (GDP) is expected to increase by 3.6 percent in 2021; Nepal’s GDP is projected to grow by 2.7 percent in the fiscal year 2021-22 and recover to 5.1 percent by 2023; Pakistan’s growth is expected to reach 1.3 percent in 2021, slightly above previous projections.
The improved economic outlook reflects South Asian countries’ efforts to keep their COVID-19 caseload under control and swiftly roll out vaccine campaigns. Governments’ decisions to transition from widespread lockdowns to more targeted interventions, accommodating monetary policies and fiscal stimuli—through targeted cash transfers and employment compensation programs—have also propped up recovery, the report notes.
“We are encouraged to see clear signs of an economic rebound in South Asia, but the pandemic is not yet under control and the recovery remains fragile, calling for vigilance,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Going forward, South Asian countries need to ramp up their vaccination programs and invest their scarce resources wisely to set a foundation for a more inclusive and resilient future.”
While laying bare South Asia’s deep-seated inequalities and vulnerabilities, the pandemic provides an opportunity to chart a path toward a more equitable and robust recovery. To that end, the report recommends that governments develop universal social insurance to protect informal workers, increase regional cooperation, and lift customs restrictions on key staples to prevent sudden spikes in food prices.
South Asia, which grapples with high stunting rates among children and accounts for more than half of the world’s student dropouts due to COVID-19, needs to ramp up investments in human capital to help new generations grow up healthy and become productive workers. Noting that South Asia’s public spending on healthcare is the lowest in the world, the report also suggests that countries further invest in preventive care, finance health research, and scale up their health infrastructure, including for mass and quick production of vaccines.
“The health and economic benefits from vaccinations greatly exceed the costs involved in purchasing and distributing vaccines for all South Asian countries,” said Hans Timmer, World Bank Chief Economist for the South Asia Region. “South Asia has stepped up to vaccinate its people, but its healthcare capacity is limited as the region only spends 2 percent of its GDP on healthcare, lagging any other region. The main challenge ahead is to reprioritize limited resources and mobilize more revenue to reach the entire population and achieve full recovery.”
The World Bank, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries respond to the health, social and economic impacts of COVID-19. This includes $12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests, and treatments, and strengthen vaccination systems. The financing builds on the broader World Bank Group COVID-19 response, which is helping more than 100 countries strengthen health systems, support the poorest households, and create supportive conditions to maintain livelihoods and jobs for those hit hardest.
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