Next two years critical for Sri Lanka’s recovery: World Bank

Faris Hadad-Zervos

• Says significant headwinds ahead that need close monitoring
• Asserts path to recovery is long and SL must stay the course

The next two years would be critical for Sri Lanka’s recovery, the World Bank (WB) Country Director for Sri Lanka said, while cautioning that there are further significant headwinds that need to be closely monitored.
WB Country Director for the Maldives, Nepal and Sri Lanka Faris Hadad-Zervos asserted that while improvements are seen in the economic and social landscape in the island nation, it is not the end of the road. 

“The path to recovery is long and Sri Lanka must stay the course. The key downside risk is a prolonged debt restructuring process, which would lead to greater uncertainty,” he told the Press Club event organised by the Sri Lanka Press Institute, this week.

“Slow or uneven implementation of the reform agenda could further delay the recovery process and the return of confidence in the Sri Lankan economy,” added Hadad-Zervos.
As the volatile global economic environment is another source of risk, continued elevation or further increase in commodity prices could make it more difficult to buy essential goods. 
Further, a global economic contraction could delay the nascent recovery of tourism in Sri Lanka and reduce demand for exports. And given the high exposures to the public sector, rising non-performing assets and tight liquidity conditions, the financial sector needs to be carefully monitored, Hadad-Zervos noted.

“There are strong concerns about the scarring effects of the crisis on growth, income and jobs going forward. As the crisis continues, more people, especially the high-skilled, may leave the country. Families in difficulty are likely to take children out of school. Companies may sell assets that are essential for businesses to stay afloat. These negative coping mechanisms will eventually lower the capacity of the country to grow and generate more jobs and income,” said Hadad-Zervos.
The WB also called for the careful implementation of the social protection reform, to prevent the poor and vulnerable from falling deeper into poverty.
Hadad-Zervos affirmed commitment to support the government on its reform path, as it is “not going to be easy” and will require strong political will, broad-based consensus and consultation and support from the development partners.
The WB will extend support via the new Country Partnership Framework and US $ 700 million financing support through the Resilience, Stability and Economic Turnaround (RESET) Development Policy Operation (DPO) and social protection projects.