Sri Lanka’s “chronic” revenue shortfalls must be addressed and its economy must become more competitive and inclusive if poverty is to be reduced, the World Bank has said.
The bank highlighted that Sri Lanka has one of the lowest tax-to-GDP rates in the world, undercutting the government’s ability to invest in public services. This is just one factor hampering efforts to reducing poverty to below 7% of the population.
As well as having little funds to invest in education, health and other services, the World Bank said the country also has an unduly large public sector, a deficit of skills, low foreign direct investment and an economy constrained by protectionist policies that hinder growth and job creation.
The country’s prime minister Ranil Wickremesinghe said that generating more jobs to minimise poverty and share prosperity more widely is a key priority, and agreed the country needs to enhance its capacity to successfully compete in global markets while creating the necessary space for investments to come in.
The bank found that while poverty has decreased, progress is uneven across location, gender and ethnicity and pockets of severe poverty still exist.
Large numbers of poor people live within or close to urban areas, and there are considerably higher rates of poverty in the north and the east.
Women’s participation in the labour market and social spending are both very low for a middle income country, the bank said, and as a result inequality is on the rise.
The bank warned that many are at risk of falling back into poverty, with 40% of the population living on less than 225 rupees per person per day.
Amena Arif, country manager for Sri Lanka and the Maldives at the World Bank’s International Finance Corporation, highlighted the role the private sector can play in driving sustainable growth and the need for policies that unleash its potential.
However the report also noted the continuing high levels of informal work, which tends to dampen productivity, access to credit and the generation of good jobs.
“The findings also reinforce the need to further measures aimed at improving the government’s effectiveness, transparency, accountability and establishing strong institutions so all Sri Lankans can take part in the country’s increasing prosperity,” added Françoise Clottes, country director of Sri Lanka and the Maldives at the World Bank.
Earlier this month the International Monetary Fund also called on the Sri Lankan government to get its public finances in order after the country missed its budget target and public debt rose to over 74% of GDP. (Public Finance International)