World Bank highlights areas of post-Budget focus

World Bank Country Director Idah Pswarayi-Riddihough participating in the discussions highlighted four areas where Budget implementation and Government coordination would have to be strongly coordinated to support strong growth so ardently desired by Sri Lanka. 

“There is a lot to love in the Budget, there is a lot to like and there are some things to wish for, so there is a little of everything. When we were looking at the Budget this year we were looking to see how much once the reforms the Government would like to respond to and to create a much more competitive environment and encourage FDI, what is the type of risk the Government could have and does the Government Budget actually respond to the risks?”  

The four areas the World Bank looked at included one key proposal that was the removal of VAT on exemption of goods including on aircraft, LPG and jewellery. The World Bank pointed out that this was a very important measure in terms of raising revenue structurally, especially since these items are not really consumed by the poor so makes a lot of sense. The Country Director insisted that this was a removal of regressive tax and therefore positive for the economy. She also stressed that while the amount of money that is allocated for assisting the poor is important; its effectiveness is also decided on how it is targeted. 

“We also try to look at other countries and what results they have had from similar policies and when something like this was done in Indonesia in 2005 and we found they had a large fiscal gain once they had started to implement the particular reform but again a lot is in the implementation of the reforms themselves in order to get the benefit. In debt management we were happy to see the proposal to introduce a Liability Management Act, which will also help the Government start to deal with the Euro bonds that we see maturing in 2019-2022.” 

“This is a really good tactical step to start with but we believe in the area of the wish list we would like to see more specific steps to come up with a medium term debt strategy including a debt management unit as well as the legal framework that supports a modern debt management function and formulating a guarantee policy to manage the contingent liability burden,” she added. 

There is a lot to love in the Budget, there is a lot to like and there are some things to wish for, so there is a little of everything ....... We believe in the area of the wish list we would like to see more specific steps to come up with a medium term debt strategy including a debt management unit as well as the legal framework that supports a modern debt management function and formulating a guarantee policy to manage the contingent liability burden - World Bank Country Director Idah Pswarayi-Riddihough

 

Focus on trade policy is imperative to attract Foreign Direct Investment (FDI) Pswarayi-Riddihough told the gathering, applauding the Budget decision to remove 1200 para-tariffs as a “very important step forward.” However, there are some other items that could also benefit from the same action, creating a much more level playing field for them. 

“We recognise that in this there are some risks to smaller firms, particularly to individuals and again the question is how to you better target safety nets, how do you actually retrain people and how do you create a transferable pension system so that people can actually move between the private sector and public sector, which is another thing that we think is very important even in terms of getting more female and gender participation in the workplace.” 

Climate change was the fourth area that Pswarayi-Riddihough spoke of, touching on the increased economic impact of natural disasters and the mitigation measures that were discussed in the Budget as “critical” to keeping Sri Lanka’s growth trajectory intact. Improving the physical resilience, which include building shelters and moving people out of vulnerable areas, protecting river basins and building climate resilient infrastructure, could have been mentioned in the Budget with more detail but the focus on this need was still welcomed. 

“Do we have the capacity to move relief fast in a disaster? Can we make sure that it gets to the people who need it most? Can we ensure there is no leakage? I think these things are very important. We do have an example of this in Mexico where we have seen them do this and something like that can also be done in Sri Lanka,” the Country Director said.