Sri Lanka Development Forum 2007

By
Praful Patel
Vice President, South Asia Region
The World Bank Group

January 29, 2007

Your Excellency President Mahinda Rajapakse
Honorable Ministers
Members of the Head Table
Members of the Diplomatic and Development Communities
Distinguished Guests:

Ayubowan

It is commendable that once again we gather for a Development Forum outside of Colombo, taking our development conversation to different parts of the country. Today we gather in the historic port city of Galle with its fascinating Dutch fort and in this building designed by Geoffrey Bawa: his world-class architecture has done so much to contribute to Sri Lanka’s important tourist infrastructure.

At the outset let me thank the Government of Sri Lanka for inviting the country’s development partners to this Forum at such a critical and challenging time.  I recall the previous Forum in Kandy in 2005 where we discussed how we could most effectively help Sri Lanka overcome the terrible devastation caused by the tsunami.  Today, just two years after that disaster, we see first-hand how the city of Galle, which was one of the most affected, is recovering.  We congratulate the country and its people on the tremendous efforts to rebuild and get the lives of so many affected people back on track.  While the accomplishments have been impressive, much remains to be done and there are some worrying delays—especially in the North and East—caused by a variety of factors.  We will discuss this more later today.

Let me attempt to frame the scope of our discussions for the precious time we have together. The renewed and deepening conflict in Sri Lanka over the past six months or so looms over everything else that we might say here. There is no way to politely skirt this issue. As a major development partner to Sri Lanka, the World Bank would be failing if we did not place the conflict front and center in our deliberations for it is this that constrains the country’s development and stands in the way of its tremendous potential.

In some ways one can speak quite positively of the past year as a good one for Sri Lanka.  The economy grew at about 7 percent; the stock market reached an all-time high; tourism until the past few months had rebounded to pre-tsunami levels; and over two billion dollars in remittances flowed into the country.  Thanks to the economic reforms launched in the 1980s, we can say that the past few decades have been good to Sri Lanka.  GDP growth has averaged 5 percent, lifting per capita income to around thirteen hundred dollars and putting Sri Lanka on the threshold of becoming a middle-income country.  Because of this growth, the poverty rate in the Western Province has fallen to single-digit levels, demonstrating that growth in Sri Lanka can be pro-poor.

But the past year has not been good at all for the families of the more than 3,500 Sri Lankans killed as a result of the increased hostilities.  Nor has it been a good year for the additional over 200,000 persons displaced by the conflict.  It has not been a good year for the whole population of the North and East who have gone through serious difficulties and distress. And the tensions among the citizens island-wide have been heightened by recent attacks, some not very far from where we meet today.

Further, if inflation continues at the current levels of nearly 20 percent, 2007 will not be a good year for the economy either.

It is against this backdrop that we gather here.  The government’s draft 10-year development framework, Mahinda Chintana: Vision for a New Sri Lanka, outlines a path for lifting 4 million mostly rural Sri Lankans out of poverty, while building on the growth that enabled the Western Province to practically eliminate poverty. The World Bank shares this vision.  But, I caution that we cannot spend two days discussing development plans if we do not place the conflict squarely in our sights as the largest obstacle.  A development vision cannot exist independently of the conflict.  In this regard, we appreciate the government’s agreement to discuss the conflict upfront on the first day.

Sri Lankan researchers have estimated that the conflict has cost the economy 2 to 3 percentage points of GDP growth annually—growth that could have eliminated poverty in the country by now.  And, this estimate does not come close to reflecting the human costs of the conflict: more than 65,000 dead, over 500,000 displaced, human rights undermined and a social fabric torn apart by the brutality and persistence of civil conflict.

Therefore, we meet at another critical juncture in Sri Lanka’s history.  If the country can implement the actions needed to realize the Mahinda Chintana and if there is a significant decrease in the hostilities, we can look to a future filled with peace and prosperity for all Sri Lankans.  Such is Sri Lanka’s potential.

I have cautioned that we cannot talk of development without considering the context of conflict, but let me turn to the discussion of the 10 year vision and how the development partners can be support it.  An important goal is equitable development. This will not be achieved without changes in both the policy and institutional environments.  For instance, if policies could shift agriculture towards high-value production and if villages are connected to markets not only through roads but also through business networks, poverty in rural areas can be dramatically reduced. 

Similarly, raising international competitiveness could be improved if the private sector, including foreign investors, could see reforms in the labor market, in the investment regime, the power sector, education and so on.  Likewise the importance of a knowledge economy is recognized in the vision but will not be realized without investing in knowledge infrastructure and fast tracking reforms in education.

Finally, much of the vision—as described in the 10-year development document—would benefit from being made more specific and parts of it will be politically difficult to realize. If a way forward is not found to translate this vision, there is a grave danger that growth will slow down, inequality will increase and poverty will persist.  It is the World Bank’s hope that Sri Lanka will find the right path to achieve the envisioned objections and we are committed to help. 

The World Bank’s more than 50-year relationship with Sri Lanka has been based on trust, mutual understanding and open dialogue.  As with any long-term relationship, there have been some bumps on the road—or as you say here, “dhoosras” on the cricket pitch. No doubt there will be more in the future.  But our commitment to remain engaged so that we might find ways to assist Sri Lanka’s poor and vulnerable is firm.  Sri Lanka has demonstrated that it can accelerate growth and achieve high standards of human development.  It has also shown that growth can reduce poverty sharply, as for the 5 million people living in the Western Province. 

Looking forward, however, the challenges are enormous.  I have placed the conflict at the center of any discussion about Sri Lanka’s future.  This is not of course a comfortable discussion but development assistance could be far more effective if the conflict subsided. We ourselves had made some fairly good progress since around 2001 working in conflict-affected areas in the North and East helping people rebuild their lives and their agriculture. Working there was extremely difficult and often delicate. But all sides found the will to find a way. Over 20,000 ha of agricultural land were brought back into active production, rice production had increased by about 90,000 metric tones per year and water supplies had been restored to about 20,000 families.  The progress we made together has now been stopped in its tracks. The government needs to enable us to do our job better by creating a more conducive environment.

We have before us today and tomorrow the challenges emerging in the economy and the challenge of renewed conflict. We in turn are challenged to cooperate closely to find the will and the way that ensures all Sri Lankans experience the benefits of development across this beautiful island.

Thank you