Sri Lanka Competitiveness DPL

closed

This program document describes the Development Policy Financing (DPF) operation to theDemocratic Socialist Republic of Sri Lanka as a stand‐alone single tranche operation for an amount of US 100 million dollar. Under its first pillar, the proposed DPF will support significant actions aimed at enabling privatesector competitiveness.The DPF’s second pillar supports reforms to enhance transparency and public sectormanagement.The DPF’s third pillar supports measures to improve fiscal sustainability.The actions supported by the proposed DPF represent an important initial set of actions that canbe expected to be part of longer‐term reform packages under consideration. This operation is presented in a context of an expected turnaround in fiscal sustainability.This DPF operation provides an opportunity to engage with a recently formed Government that is formulating policies to facilitate structural reform and a new approach to governance. The political transition is occurring at a time where Sri Lanka needs to address new challenges ifit is to sustain its strong record of economic growth and poverty reduction.Low competitiveness, high reliance on non‐tradable sectors and a stale export basket highlightthe need to enhance private sector competitiveness. Despite strong declines in poverty over the past decade, challenges remain in boosting theshared prosperity of the bottom 40 percent and ending extreme poverty. The current account deficit is projected to widen gradually to 2.8 percent of Gross Domestic Product (GDP) in 2020 afterreaching its narrowest point in 2016 on account of the expected partial recovery of global commodity prices.Beyond 2016, gross external financing needs are substantial, especially from 2019, but manageable provided that there are increases in FDI, though prudent and forward‐looking debt management is needed.