LK-PRSC

closed

The principal objectives of the Government's development, and poverty reduction strategy include securing lasting peace, accelerating economic growth, and strengthening governance in the public sector. This Poverty Reduction Support Credit (PRSC) Project is designed to support the implementation of Sri Lanka's Poverty Reduction Strategy (PRS). This operation, PRSC I, would be the first of a series of annual PRSCs within a rolling four-year horizon, overlapping with Sri Lanka's PRS period. Consistent with the Government objectives and priorities, the PRSCs would support reforms in two major areas: 1 ) accelerating economic growth and supporting private sector development; and, (2) strengthening governance in the public sector and improving the welfare system. This PRSC will help the Government in moving forward with the structural reforms, create conditions for accelerating economic growth, and send a strong signal to the private sector. Furthermore, it will foster a continued fiscal consolidation, improve public sector governance, and, strengthen institutional framework and capacity in the management of public resources. These developments would also lead to improvements in the poverty-focus of public expenditures. Nevertheless, there are several risks: (a) the derailment of the peace process; (b) a substantial deterioration of external environment; (c) potential for domestic political instability, since Sri Lanka is going through a period of political "cohabitation"--a President from one party, and a Government from another; and, (d) resistance by labor unions to some economic reforms. Risks however, are mitigated by the design of the credit, and by the Country Assistance Strategy (CAS) triggers.