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The Asian Development Bank (ADB) has released a cautiously optimistic report on Sri Lanka’s economic reform journey under the new administration. While commending the government’s commitment to fiscal and structural reforms, the ADB emphasized the need for prudent economic management due to limited fiscal space. The report aligns with the ADB’s Country Partnership Strategy for Sri Lanka (2024-2028), which focuses on fostering equitable growth, strengthening resilience, and ensuring social inclusivity.
ADB’s View on Economic Reforms
The ADB acknowledged the new administration’s efforts to ensure reform continuity, recognizing this as a critical factor in sustaining economic stability. According to Takafumi Kadono, ADB Country Director for Sri Lanka, the government is aware of its fiscal constraints, particularly in meeting the IMF’s primary balance target of 2.3% by 2025 under the Extended Fund Facility (EFF).
To achieve these goals, Sri Lanka must focus on revenue generation and expenditure management. The ADB stressed the importance of reforms that balance fiscal targets with the need to protect vulnerable populations.
Equitable Burden-Sharing: A Key Focus
A central theme of the ADB’s outlook is the need for equitable burden-sharing in economic reforms. Ensuring that fiscal adjustments do not disproportionately affect vulnerable groups is critical to maintaining social stability.
The ADB has advised the government to adopt balanced revenue policies that prioritize social welfare while pursuing fiscal targets. This approach could include targeted support for lower-income groups and policies that promote broad-based economic participation.
ADB’s Country Partnership Strategy (2024-2028)
The ADB’s five-year Country Partnership Strategy is structured around three key objectives:
1. Strengthening Public
Financial Management and Governance
The ADB aims to enhance transparency and accountability within Sri Lanka’s
financial systems. Improved governance is expected to build public trust and
create a solid foundation for fiscal stability.
2. Promoting Private Sector
Development for Green Growth
The ADB emphasizes green growth by supporting sustainable business practices
and fostering private sector engagement. This focus aligns with global
environmental goals, encouraging economic development that prioritizes
sustainability.
3. Enhancing Climate-Smart
Public Services and Social Inclusion
A key priority is expanding access to climate-resilient infrastructure and
services while ensuring that marginalized populations are included in economic
growth.
These objectives reflect the ADB’s commitment to building long-term resilience and promoting equitable development in Sri Lanka.
Challenges and Adaptations
Sri Lanka’s lack of a formal medium-term socioeconomic development plan remains a significant challenge. To address this gap, the ADB has conducted extensive consultations with stakeholders, including the government, private sector, civil society, and academia, to ensure its strategy aligns with national priorities.
The ADB emphasized flexibility in its approach, allowing for strategic adaptations to address emerging challenges while adhering to its core objectives. Despite its optimism, the ADB warned of Sri Lanka’s limited fiscal space, which necessitates careful fiscal management to avoid jeopardizing social and economic stability.
Long-term resilience, the ADB noted, is essential for Sri Lanka’s ability to withstand future economic, environmental, or social shocks.
Conclusion
The ADB’s 2024-2028 Country Partnership Strategy outlines a comprehensive plan to support Sri Lanka’s economic recovery and long-term resilience. The report acknowledges the government’s commitment to reform while highlighting the need for prudent fiscal management and equitable burden-sharing to protect vulnerable populations.
As Sri Lanka navigates its fiscal and social challenges, the ADB’s strategy emphasizes sustainability, inclusivity, and resilience as the cornerstones of its development goals. Achieving these objectives will require careful planning, strong governance, and a steadfast commitment to economic and social reforms.
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