Report on ADB’s Outlook for Sri Lanka’s Economic Reforms and Strategy (2024-2028) Date : 5 November 2024 Prepared by : Analysis Team ...
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Report on ADB’s Outlook for Sri Lanka’s Economic Reforms
and Strategy (2024-2028)
Date: 5 November 2024
Prepared by: Analysis Team
Executive Summary
The Asian Development Bank (ADB) has issued a cautiously optimistic report on Sri Lanka’s economic reform journey, expressing confidence in the new administration’s commitment to continuity in reform initiatives. However, the ADB also warns that Sri Lanka has limited fiscal space, meaning the government must proceed with a prudent approach. The ADB anticipates a focus on achieving a more equitable distribution of the economic burden to protect the country’s vulnerable populations, a goal that aligns with ADB's Country Partnership Strategy for Sri Lanka (2024-2028).
Overview of ADB’s Economic Outlook
The ADB has commended the signs of continuity in Sri Lanka’s reform programs under the new administration, recognizing a commitment to fiscal stability and economic recovery. According to ADB Country Director Takafumi Kadono, while the government appears motivated to pursue necessary reforms, it must do so within strict fiscal constraints. The government faces the dual challenge of increasing revenue while managing expenditure, as meeting the IMF’s primary balance target of 2.3% by 2025 under the Extended Fund Facility (EFF) program remains a priority. Kadono also indicated that the government appears to be aware of these limitations, which is critical for maintaining economic stability.
Focus on Equitable Burden-Sharing
One of the key themes in ADB’s assessment is the expectation that Sri Lanka’s new government will pursue an equitable burden-sharing strategy in its economic policies. This strategy is intended to ensure that the reforms do not disproportionately affect the country’s most vulnerable groups. The ADB suggests that a more balanced approach to revenue generation could help achieve fiscal targets while also providing essential support to needy populations. This dual focus on revenue enhancement and expenditure management is essential for achieving fiscal stability without undermining social welfare.
ADB’s Country Partnership Strategy (2024-2028)
The ADB’s five-year Country Partnership Strategy for Sri Lanka, approved in March 2024, outlines a framework to support sustainable recovery and long-term resilience. The strategy is designed around three primary objectives:
- Strengthening Public Financial Management and Governance: This objective focuses on enhancing transparency and accountability within Sri Lanka’s public financial management system. Improved governance practices are expected to build trust in institutions and lay a robust foundation for fiscal management.
- Promoting Private Sector Development for Green Growth: The ADB places particular emphasis on fostering green economic growth through private sector engagement. By supporting sustainable business practices, the ADB aims to drive economic growth that aligns with global environmental goals.
- Enhancing Climate-Smart Public Services and Social Inclusion: A priority is placed on expanding access to climate-resilient public services and ensuring social inclusivity. This focus is in line with ADB’s broader mission to promote sustainable and equitable growth.
These strategic objectives underscore ADB’s commitment to supporting Sri Lanka’s long-term economic resilience and align well with the new government’s evolving policy focus. Kadono reiterated that, while some adjustments to the strategy may be necessary, ADB’s primary goals remain valid, and its approach will adapt to meet emerging needs without straying from the core objectives.
Challenges and Strategic Adaptations
The ADB acknowledges that Sri Lanka currently lacks a formalized medium-term socioeconomic development plan. In response, the ADB has undertaken extensive consultations with the government, private sector, civil society organizations, academia, and other development partners. Through these discussions, the ADB has been able to align its strategy with the needs and priorities of Sri Lankan stakeholders, thus ensuring that its interventions are relevant and impactful. Kadono emphasized that ADB’s flexible approach will allow for necessary adjustments while continuing to target sustainable recovery and resilience.
Despite the positive outlook, the ADB cautions that the government has limited room for maneuver due to economic and fiscal challenges. This reality underlines the importance of careful fiscal management and the need for reforms that do not compromise social stability. Ensuring long-term resilience is a core objective, as it will equip Sri Lanka’s economy to withstand future shocks, whether economic, environmental, or social.
Conclusion
In summary, the ADB’s latest report on Sri Lanka presents a balanced view, combining optimism about reform continuity with a realistic understanding of the constraints the country faces. The 2024-2028 Country Partnership Strategy reflects the ADB’s commitment to fostering sustainable recovery through targeted interventions that promote social inclusion and economic resilience. As the government pursues revenue-enhancing measures and expenditure management, the ADB underscores the importance of an equitable approach to reform. Achieving long-term economic stability will require careful planning, efficient governance, and a steadfast focus on resilience.
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