Sri Lanka needs meaningful outcomes of debt restructuring

The World Bank in its October 2022 update says that it will be imperative to protect the poor and vulnerable by providing immediate additional assistance to the poorest in need, while comprehensively reforming the social protection system.

The World Bank warns that poverty has increased sharply since 2021, and it is likely to increase further in the absence of effective mitigation measures and made several recommendations.

– In the short run, increasing financing for social assistance should be a priority.

– The government will need to invest in the establishment and operationalization of the Welfare Benefits Board and a Social Registry.

– The generosity of cash transfers needs to be revisited, particularly for some vulnerable groups

– Sri Lanka also needs to adopt more modern payment systems for cash transfer programs.

– Given its increasing vulnerability to shocks, Sri Lanka would also benefit from developing a social protection system that can scale up and phase out where needed.

– In the medium to long term, Sri Lanka needs to transition to a more fiscally sustainable and inclusive social insurance and aged care system.

– Sri Lanka also needs to strengthen its productive inclusion programs.

– Finally, a social protection strategy is needed to guide the overall social protection reform

The World Bank said that Rising debt vulnerabilities and weak competitiveness, resulting from years of risky borrowing and poor fiscal and monetary policy choices, along with weak governance, led to an unsustainable debt and a severe balance of payments crisis.

It warned that a delayed response allowed the crisis to spread to all key sectors of the economy.

The World Bank said that a significant economic contraction is likely in 2022, as the economy undergoes a large correction of fiscal and external imbalances.

It said that a strong and credible fiscal and structural reform program is warranted to avoid a prolonged crisis and address the root causes of the current economic difficulties, adding that firm resolve of political leadership and the Sri Lankan citizens would be needed to overcome the crisis through structural reforms. Meaningful outcomes of debt restructuring, and collective support of international partners would also be needed to maintain the reform momentum and chart the course for a speedy and robust economic recovery with a sustainable growth path.